Chinese Market Make A Dreaded Fall

China's main stock index tumbled 8.3% on 4th June in its second biggest drop this decade. The Chinese govt is to be blamed for the huge drop after they increased the stock trading tax to control the bull market. The index lost 15.3% from last week's record intra-day high, erasing about $340 billion of value.

Many fund managers and analysts said the index, which had risen 62% this year had room to fall much further in coming days as the excesses of the bull run were corrected. But many also said they did not believe the market as a whole was going into free fall. It is expected that 3rd-tier stocks pushed up by speculative buying will likely fall further. But stocks with solid earnings growth potential should be able to withstand the sell-off.

Front-page editorials in official newspapers assured investors the market's medium- and long-term outlook was still positive, and that the tax hike was merely aimed at speculators. But this failed to halt the selling, as it was little comfort to millions of individual investors who had entered the market in recent months to make money from short-term trading. Nevertheless, many analysts and fund managers said they did not believe the government, which has made a strong stock market central to its economic reforms, would permit an extended slide.