Investment: stock markets

We’re all Shanghai gamblers now

You might think yourself a fairly cautious investor. Maybe you dabble in a few shares and unit trusts, probably in major, well-established markets such as the US, Japan or Germany, as well as London. Emerging markets, and in particular the wild frontier that is China, you might reckon best left to professionals. And if you do occasionally take a few exotic punts, you’re very likely to restrict them to 10 per cent or so of your portfolio.

But if you believe your exposure to the great Eastern dragon is modest or negligible, you’re wrong. It turns out that we’re all playing the Shanghai market now. Where once global stock markets took their cues from the Dow Jones or the S&P500, the two big American indices, they are now increasingly led by something called the Shanghai Composite. This benchmark index for Chinese stocks sets the tempo to which other global markets dance. If it’s up overnight, Europe rises — and New York later in the day. When it’s down, the rest of the world follows. So actually, it doesn’t matter much what you decide to do with your money: what happens to it will be heavily influenced by the fevered traders and gamblers of the Shanghai bourse.

Just take a look at the figures. In 2008, the Shanghai market fell by 65 per cent, leading the rest of the world down. In the first six months of this year, it rose by 63 per cent, leading global markets back up again. True, Shanghai took a wobble in August that didn’t spread around the world, but people close to the markets reckon the mood is now generally set in China. ‘European equities rise and fall with the ups and downs of the Shanghai stock indices,’ argued Monument Securities economist Stephen Lewis in a recent report.