With Chinese continuing to open brokerage accounts at the rate of 300,000 a day and some believing that it’s easier make a living in the stock market than working, the market is inevitably heading for a crash, Forbes.com reports.
The Shanghai-Shenzhen Index rose 127% in 2006 and is up 74% this year, and the price/earnings ratio of Chinese stocks is more than 40. Most believe these factors are certain to lead to a bubble.
The bigger question that many are now asking is how broadly the bursting of the market in China will impact the rest of the world. As Forbes.com cleverly puts it, “What happens in China does not stay in China.”
A sharp decline in the Shanghai stock market certainly could ignite a global sell-off, as proven on Feb. 27 when the Shanghai index fell 9%, causing the Dow Jones Industrial Average to tumble 41 points.