Another Eastern Tsunami Redux?

May 30, 2007

There are those that seem to think that the stock market cannot possibly go down. Yes, the Dow does take a hit every now and then, but fear not, it’ll go back up the next six days. Wednesday may be one of those days that mentality gets a little adjustment. Here’s what looks to be headed our way today.

U.S. stock futures were down sharply in early trading, indicating a lower open for stocks, after the Shanghai Composite index plunged 6.5 percent in early trading after China hiked a tax on stock trading there in an effort to cool economic growth.

The declines came after the Finance Ministry tripled the “stamp tax” on stock trades from 0.1 percent to 0.3 percent, effective Wednesday. The ministry was trying to “cool (the) stock market,” the official Xinhua News Agency said.

“This policy change reveals the government’s concern about a possible stock market bubble,” said Citigroup economist Minggao Shen, describing the tax hike as Beijing’s first formal move to cool the boom. “The market didn’t know what the government was thinking until now.”

On Feb. 27, an 8.8 percent drop in the Shanghai index sparked a global sell-off, including a 416-point drop in the Dow Jones Industrial average in the worst day for U.S. stocks since the resumption of trading following the 9/11 attack in 2001.

Soon welll know for sure.