Is Chinese stock market on the verge of “Black Thursday”?

On Thursday, October 29, 1929, which is called “Black Thursday”, the Wall Street Crash broke out, followed by a world-wide collapse of share values and the Great Depression. Before that day, most investors never even thought a drop was possible, as the Dow Jones had rocketed from 60 to 400 during the past 8 years. However, the index slumped 21 percent at the end of that day. The common viewpoint is that the stock prices were too high, and the extraordinary speculation on Wall Street resulted in the crash.

After 70 years, Chinese stock market seems to on the verge of “Black Thursday”. The Shanghai Stock Exchange Index was 998.23 in June 2005. However, just at the time of writing this article(19/09/2007), it has already soared to 4204.70, almost as much as four times as that one and half years ago. Floods of small investors are gambling in a the crazy market, with the wish of get rich overnight. Although Chinese Central Bank has raised the interest rate for five times this year (from 2.52% to 3.87% in one-year deposit rate and from 6.12% to 7.29% in one-year loan rate) to cool down the stock market, it is not working.

There may be some reasons for the boom of Chinese stock market. First of all, the increasing revaluation of Renminbi is a strong support. Secondly, foreign capital flooded into Chinese stock market, which push the stock index up to around 3000 points. Last but not the least, confidence in the development of Chinese economy.