MikeLigalig.com

ONCE the soundtrack to a financial meltdown was the yelling of traders on the floor of a financial exchange. Now it is more likely to be the wordless hum of servers in data centres, as algorithms try to match buyers with sellers. But every big sell-off is gripped by the same rampant, visceral fear. The urge to sell overwhelms the advice to stand firm.

Stomachs are churning again after China’s stockmarket endured its biggest one-day fall since 2007; even Chinese state media called August 24th “Black Monday”. From the rand to the ringgit, emerging-market currencies slumped. Commodity prices fell into territory not seen since 1999. The contagion infected Western markets, too. Germany’s DAX index fell to more than 20% below its peak. American stocks whipsawed: General Electric was at one point down by more than 20%.

Rich-world markets have regained some of their poise. But three fears remain: that China’s economy is in deep trouble; that emerging markets are vulnerable to a full-blown crisis; and that the long rally in rich-world markets is over. Some aspects of these worries are overplayed and others are misplaced. Even so, this week’s panic contains the unnerving message that the malaise in the world economy is real.


More at: http://www.economist.com/news/leaders/21662544-fear-about-chinas-economy-can-be-overdone-investors-are-right-be-nervous-great-fall

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Having taken interest rates to the extreme and then well beyond, the most visible effects have been a series of asset price bubbles from property to shares and bonds, but precious little real investment in productive activity.

Late last year, China's Xi Jinping and Li Keqiang went all funky and unveiled "The New Normal"; a strategy to shift growth in the world's second biggest economy from massive state-led and debt-funded infrastructure programs to a more market oriented, consumer led model for growth.

It was a great plan on paper and the slogan was infinitely more hip than the Cultural Revolution's brutal campaign of "Thinking in New Ways".

But the implementation appears to be going off the rails.

Central to the plan was to develop the stock market, not just to encourage new entrepreneurs but to enable state owned or controlled enterprises to raise private capital in an effort to wean them off state funding.

Borrowing restrictions were lifted, an historic link forged with the Hong Kong exchange as both The People's Daily and the official Xinhua news agency published articles linking a rising market to a buoyant economy.

Ordinary citizens heeded the call as the number of regular retail investors soared to 90 million, many of them borrowing heavily to get a slice of the government endorsed action as margin loans grew to $360 billion.

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