China Markets Pullback- More on the Way?

Last night I was watching CNBC very late in the evening, and the big story was China. The government in China decided to up the tax on securities transactions, from 0.1% to 0.3%. Not a huge jump when you think about it but investors began selling.



The Chinese index dropped 6.8 percent in one day, the largest drop in 3 months. All markets across Asia were shaken as well, with the Japanese and Hong Kong markets dropping as well. One investor, whom I won't name but does have credibility and manages millions says there will be a significant pullback after the Olympics.

But why would the market be so high, and why would it crash. Simple. Stories like this. This guy is featured in the Bloomberg article.

Li Shi, a 50-year-old retired factory worker, predicts the market will be in the doldrums for the next couple of months. He bought shares of property developer Beijing Centergate Technologies (Holding) Co. in April, resulting in a paper profit of 10,000 yuan ($1,308) before today's fall. The stock plunged by the 10 percent daily limit on the Shenzhen exchange today.
``I don't dare to sell because I'll have to incur a real loss if I do,'' Li said today in an interview at Tiantong Securities Co.'s Chaoyangmen branch in central Beijing. ``I've invested my entire life savings in the stock market.''

Scary. Following the herd is always problematic for retail investors. They're the ones who get burned because the big guys usually get out first.