In China's wild, cowboy stock market, record-breaking run-ups have been followed by mini-market crashes that have been largely confined within this country's borders.
But on Tuesday, China's worst one-day tumble in a decade set off a tumult that rolled through markets from Tokyo to Frankfurt to Brazil to Wall Street. Speculative frenzy had lifted the Shanghai Composite Index above the 3,000 point milestone on Monday and then gave way to a tumultuous sell-off on Tuesday that sent shares plummeting nearly 9 percent.
The stock wreck shattered all sorts of records, and analysts say there was no clear reason for Tuesday's dramatic drop in Shanghai, equivalent to an 1,100-point drop in the Dow Jones Industrial index. But the Chinese stock market was rife with rumors that the government was considering new measures to tame the world's hottest stock market before a bubble developed.
To many investors and analysts here, however, the huge sell-off was just the latest indication that share prices in China have been defying reality.
Millions of everyday investors are rushing blindly into stocks, emptying out their savings account to "play the market," as many of them here say.
Perhaps the most remarkable sign of the recent irrational exuberance underpinning China's stock markets is that during the past year, when a company has announced bad news, its stock price has been shooting through the roof.
Early this year, for instance, when a group of 17 Chinese companies was cited by regulators for misappropriating corporate funds, their stock prices all skyrocketed. When the Tianjin Global Magnetic Card Co failed to report quarterly earnings in April, its stock doubled.
With shares in Shanghai tumbling, stocks listed in Shenzhen also collapsed, falling 9.3 percent. In Hong Kong, the benchmark Hang Seng Index fell 1.76 percent, and in Japan, the Nikkei dropped about half a percent to 18,119.92.
But none of the world's major stock markets has been as volatile as in China, where people refer to the stock market as dubo ji, or the slot machine.
The gyrations have become almost commonplace for a stock market that suffered through a five-year depression until last year, when it rose more than 130 percent, the world's best performance.
The Chinese government, however, is worried about an exuberance that could produce a bubble and then a crash that could send bankrupt individual investors into the streets in protest.
Analysts say that at least in some cases, the stocks of tainted companies have risen because the companies were viewed as shedding old problems and starting anew. Still, some of these problems reflect deeply held cultural attitudes and are unlikely to be fixed overnight.
Analysts also argue that the market has been rising because of stronger fundamentals, rising profits, improved regulations and oversight by officials and confidence in the market's long-term growth prospects.
But in this current run of market mania, even corruption appears to be a buy signal. That was the case for the Shanghai Bailian Group, which reported on Dec. 29 that its chairman was under investigation for fraud. The company's shares have climbed 45 percent since then.
Two weeks ago, after the chairman of Shanghai Hai Niao Enterprise Development Co was detained, his company's shares rose 15 percent.
"There's just too much liquidity out there, too much," says Chang Chun, a financial reform expert at the China Europe International Business School in Shanghai. "This is a psychological thing."
China's stock market system is still relatively immature, and trustworthy information about a company's performance is still hard to come by. So the average investor does little or no research.
Government officials began cautioning several weeks ago against "blind optimism" in the stock market. Banks were ordered to stop making loans to people who were speculating in the market. Trading volumes have been so high that the Shanghai Stock Exchange recently warned that the country's electronic trading system could be destabilized.
Stock prices fell sharply for four consecutive days early last month as investors seemed to contemplate the possibility of an overheated stock market.
After a brief pause, they rushed in again. Foreign money is also piling in, according to JPMorgan, and hardly an analyst is willing to bet against the stock market.
"You can't be a fundamental investor in China," said Michael Pettis, a professor of finance at Peking University. "You can only speculate. Fundamental investors make long-term cash flow projections. In China, there's not good information or corporate governance."
Pettis, who has long been a skeptic of China's markets, is raising a fund to invest in Chinese stocks, based on his projections of the inflow that will push up prices.
"There's a huge amount of money in the banking system with nowhere to go," he said. "I think you're going to see that money getting out of the banking system."
Mutual funds are also helping some individual investors, while others are scrambling into initial public offerings, which over the past year have had a strong opening-day track record.
Of the 15 companies that went public on the Shanghai Stock Exchange, 12 of them saw opening-day rises of more than 10 percent.
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