June 28, 2015

“On one side people have concern about the valuations, and on the other people still believe the government is supporting the market...”

Bloomberg It looks like the price chart of an over-the-counter penny stock: dizzying gains, abrupt U-turns, harrowing declines. by Belinda Cao and Kana Nishizawa

'But this is no obscure security from the rough-and-tumble fringes of Wall Street. It’s China’s Shanghai Composite Index, the yardstick for an $8.1 trillion equity market -- the world’s largest after the U.S. -- where extreme volatility is becoming the norm.

'Fueled by record amounts of borrowed money and the whims of more than 80 million individual investors, swings in the Shanghai Composite have climbed to the highest levels since 2008. They’re bigger than every other benchmark index worldwide after Greece, along with a quarter of the 100 most-traded penny stocks on U.S. bourses, according to data compiled by Bloomberg.

'“You’d think you wouldn’t see this volatility in such a large equity benchmark,” Ankur Patel, the chief investment officer at R-Squared Macro Management LLC, said by phone from Birmingham, Alabama. “The flows in and out have been so substantial and it’s been driven by retail investors. Those are the same characteristics you see in penny stocks.”'

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