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World Stocks Fall As China Market Unravels

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World stock markets lurch downward as investors take profits from rally; China dives 4.3 pct

Jeremiah Marquez, AP Business Writer

On Wednesday August 19, 2009, 5:07 am EDT

HONG KONG (AP) -- World stocks lurched lower Wednesday, with Shanghai's index tumbling as much as 5 percent, as this year's powerful rally started to peter out amid concerns the markets were overheating.

Asia's markets were modestly higher through the morning in lethargic trade before getting whacked, with Europe following them down in early trade. Crude oil prices along with Wall Street futures gave back their early gains.

The drop came on the heels of a steep fall in world markets Monday when investors were spooked by weakness in American consumer spending and losses in Shanghai that seemed to augur an end to the five-month rally that's boosted benchmarks over 50 percent.

China again led Asia lower Wednesday.

Ample liquidity combined with hopes stronger Chinese economic growth will spill over to other countries have helped drive many of the region's markets this year. But investors have grown uneasy of late about tighter government monetary policy that could soak up the easy money.

"We've had a very strong run and people are a little unnerved by what's going on in China, so it seems like a good opportunity to take some money off the table," said Adrian Mowat, chief Asian and emerging market equities strategist at JP Morgan in Hong Kong.

The recent selling could be a good buying opportunity, Mowat said. "For the Asian markets outside China to stabilize a bit, we need to see (Chinese shares) stabilize."

As trading got under way in Europe, Britain's FTSE 100 fell 1.1 percent, Germany's DAX lost 1.5 percent and France's CAC-40 swooned 1 percent.

In Asia, Japan's benchmark Nikkei 225 stock average lost 80.96 points, or 0.8 percent, to 10,204.00.

Hong Kong's Hang Seng shed 1.7 percent to 19,954.23.

Elsewhere, South Korea's Kospi fell 0.3 percent, India's Sensex was 1.3 percent lower and Taiwan's index was flat. Australia's benchmark lost 0.2 percent. Indonesia's market, another investor favorite this year, was down 2.7 percent.

In Shanghai, the main index plunged over 5 percent at one point before closing down 125.30 points, or 4.3 percent, to 2,785.58.

The benchmark has lost nearly 20 percent since Aug. 4 on worries about corporate profits, the strength of China's recovery and possible changes in Beijing's easy credit policy that has helped to fuel the bull run in Chinese stocks this year.

"Investors are afraid there are no fundamentals to support the rally," said Cai Xiang, a Sinolink Securities analyst in the western city of Chengdu.

Overnight in the U.S, stronger-than-expected retail earnings reports and the latest reading on housing sent markets to a higher finish following a bout of heavy selling on Monday.

The Dow rose 82.60, or 0.9 percent, to 9,217.94. The Standard & Poor's 500 index gained 9.94, or 1 percent, to 989.67, while the Nasdaq composite index rose 25.08, or 1.3 percent, to 1,955.92.

In futures trading, Dow futures were down 77 points, or 0.8 percent, at 9,130 and S&P futures lost 9.4, or 1 percent, to 980.20.

Oil prices were unable to hold on their advance in Asia, losing 23 cents to $68.96 a barrel. On Tuesday, the contract gained $2.44 to settle at $69.19.

The dollar fell to 94.32 yen from 94.70 yen, while the euro fell to $1.4102 from $1.4131.

AP researcher Bonnie Cao in Beijing contributed to this report.

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"Investors are afraid there are no fundamentals to support the rally."

I thought only wishful thinking was required. Not boring old fundamentals. :blink:

Bubble's are bursting at breakneck speed now it seems, as people contemplate real world considerations rather than the only "ever goes up" approach.

Edited by Wait & See

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Profit X :blink:

Mark Dixon, a founder of the mergers and acquisitions adviser the1.com, which is active in mainland China, unwittingly unearthed some Chinese accounting tricks while valuing a local company.

What with the world still reeling from the domino effect that Lehman Brothers’ balance sheet had on financial markets, the exposure of accounting frauds like the one at the Madoff fund and the final throes of the expenses scandal in the British Parliament, a trip to China promised to be a breath of fresh air in this atmosphere of fishy finances.

Hired by a client to help with an acquisition in China, I was given the job of deciding how much the buyer should pay for the business. That meant first calculating an accurate profit for the target company, its so-called normalized profit.

In the West, the process involves making a few small adjustments caused by things like no longer having to pay salaries to sellers if they aren’t going to stay at the company and other nonrecurring items. But it shouldn’t mean having to recalculate the entire income statement.

Generally Accepted Accounting Principles are not generally accepted in China. This is partly because the Chinese have their own accounting rules and partly because rules are for breaking.

And it’s not just that some company owners are trying to confuse the tax authorities. It’s that, when they do so, they end up also confusing themselves.

The gymnastics they do with revenues and costs are so impressive that the Beijing Olympics should have added an event especially for accountants. Markets with developed gray economies, like Italy, are well known for the practice of keeping one set of accounts for the government and another for the owners so they know what’s really going on. Chinese companies often dispense with the second set, hence the confusion. That’s probably true of other “developing gray economies.â€

One can hardly call something normal when it doesn’t normally happen. So my quest for normalized profit was really a search for the abnormal — indeed, it might better be called abnormal profit. In fact, it was so elusive it seemed like a search for the abominable snowman.

My Chinese interpreter couldn’t handle the term normalized profit, so I dropped it in favor of true profit. But that only caused offense because it implied the figure before adjustment was a lie, which indeed it was. I then tried the expression official profit, by which I meant “what it officially should be,†but that didn’t work because it got lost in translation with the false profit they were officially reporting. I finally explained it as “the profit you would have received if you had reported everything completely correctly,†at which point I added, “Let’s for simplicity just call it Profit X!

Really good article Linky http://dealbook.blogs.nytimes.com/2009/08/...s/?ref=business

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Stop selling treasuries or we crash your stock market. :ph34r:

Do GS have any of their servers in China?

Edited by OnlyMe

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Guest DissipatedYouthIsValuable

But didn't Greenland post a 3% rise in GDP as Ungo Maki killed another seal yesterday?

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