May 30, 2007
There is an intriguing story today covered by Bloomberg news that illustrates the ever complex nature of contemporary investment.
The Chinese government seeking wisely to restrain excess speculation in its stock market introduced a a small increase in its stamp tax applied to stock transactions. This caused the Chinese market to sell off for a loss of 6.8 % points. In turn the Japanese yen rose in value because some of the stock purchases had been financed by loans in the Japanese money markets where loans are at very low prices because interest rates are only 0.5 %.The borrowers after selling their stocks sought to unwind their loans causing a rise in demand for Japanese yen to repay the loan.
A very interesting tale of global investment patterns
which illustrates both the complexity of the international markets, the high degree of financial short term speculation involved and the dangers should things go wrong.
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