Chinese stocks continue their rollercoaster ride

Are the Chinese stock markets poised to drop again? And if they do will it be a buying opportunity or the beginning of a bear market? Those are the questions that are on the minds of stock traders and investors as the Asian markets stumble lower. Perhaps the only answers will come from America, predominantly from the Fed and the economy,

So far Monday there has been a 5.5% drop in the Shanghai Composite Index, with Hong Kong down 4.7%. This is following the drop in U.S. markets on Friday, and reflects the insecurity many have about the next moves of the U.S. Federal Reserve. Expectations after last weeks astounding .75 basis rate cut were that this week’s regularly scheduled meeting would provide another .50 basis point rate cut. Those expectations have come under question and the markets have sold in the face of that uncertainty.

The lagging U.S. economy is causing ripples throughout the world. Fears of a recession in America have hit financial sectors across the globe. While the Fed’s rate cuts have been a strong reassurance, the underlying weakness of the economy is still a factor that affects everyone. Many are looking to see if the proposed stimulus package will be enacted in time and with enough force to avert further slowdowns. The final effect of the stimulus plan is debatable though.

So as the Chinese financial sector bobs like a buoy on the ocean, fears of further losses both near-term and long term are abounding. One thing that is not being spoken about is a benefit that only China has in this year. The Olympics.

Unlike the forced injection of capital planned in the U.S., China has the Olympic Games which will bring in capital to its communications, travel, lodging, and services industries. This boost is temporary, but is enormous. 2nd and 3rd quarter numbers are bound to get a bonus, and coupled with continued lower rates from America could overcome any world recession fears.

The real questions seem to be, is America in a recession, how long will it last, and how slow will it be. There is no question that world interest rates will be going lower, led by America. It’s likely that another .50 - .75 basis points will be dropped before the end of the year. Most might agree that it could happen as soon as the end of the 2nd quarter.

Perhaps the only sector that is weathering the questions and intermediate volatility with relative ease has been the mining sector. Huge demand for gold and other base metals continues to be on the rise in China and India. Prices for gold remain at virtual record levels, with futures markets still trending up.

So whether or not the Fed moves rates this week or not, the real questions will take a month or 2 to be resolved. Until then cautious decisions and opportunities will rise and fall like an Olympic pole vaulter. [Obviously joke writing is not my main pursuit.]