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China instigates increase in volitility

01.06.07

The various indices that measure stockmarket volatility have been drifting down for the last three years, but have risen a couple of times this year. Again this week they surged as a fall in the Chinese market provided more ammunition for the bears, but it was not enough to hold back the tide of buying.

On Tuesday night, the Chinese Ministry of Finance increased stamp tax on transactions from 0.1% to 0.3% in an effort to curb speculation in the stock market, which caused the Shanghai Composite index to drop 6.5%. Unlike in late February, where a similar fall led to a turbulent three weeks for world markets, almost all commentators had expected a natural pullback in China recently and last night saw normal upward movement restored.

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