Wednesday, June 07, 2006

Shanghai stock index down by 5%

Regular readers know that I pay close attention to the Shanghai Stock Exchange Composite ($SSEC). It dropped by 5.33% last night, the largest 1-day decline in four years. Preliminary reports blamed the plunge on IPOs siphoning off liquidity from the broader market, but it sounds like red herring to me. I have noticed the strength of FXI relative to the other emerging market ETFs recently, but this precipitous drop obviously changes everything. It's way too early to call but the implications on commodity stocks are grave if the damage spreads to the real economy.

Note that although I was quite bullish on FXI earlier this year I closed out my position last month.