Chinas increasingly stressed-out execs
So what did prompt the sell-off? I dont presume to know. But the most plausible explanation I heard was that mainland investors pulled back because on Monday the Shanghai Composite index crossed the 3,000 threshold. If that sounds simplistic or patronizing, I invite you to spend a few hours in the lobby of major Chinese brokerage in Shanghai some day chatting with some real Chinese about their investment strategies.

It shouldnt take too long to work out that ordinary Chinese investors (in those Shanghai brokerage lobbies, many will be shuffling around in front of the trading screens in their pajamas) arent the most sophisticated lot. In Chinas domestic stock markets, there are no equivalents of Peter Lynch, Warren Buffett, Calpers or TII-Cref. Naive individuals, not experienced institutions, rule the roost. And since not even the savvy investors put much faith in market information disclosed by the companies themselves, rumor triumphs and investors are suckers for complex technical analysis of irrelevant historic stock data and meaningless price points.

Which brings us to Question Two. Why should supposedly intelligent investors in established markets like London, New York or Tokyo pay the slightest heed to whims of Shanghais pajama-clad punters? Its not like Western investors have direct exposure to Chinas exchanges; except through an incredibly convoluted and limiting scheme called the Qualified Institutional Investor program, Beijing bars overseas investors to purchase yuan-dominated shares trading on the mainland exchanges.

Buffett blasted for holding onto PetroChina
Perhaps the flighty foreigners imagined Chinas investing masses were privy to some dark secret about the fragility of the worlds fastest growing economy that remained unknown to the outside world? (Curious, though, that on the day mainland bourses collapsed, Hong Kong, the biggest overseas market for Chinese shares, mostly shrugged it off, surrendering less than 2%.)

The linkage argument looked even loopier by late Wednesday, when the Shanghai Composite bounced back, gaining 4 percent, while Japans Nikkei 225 stock index lost 2.8 percent. Increasingly, it is clear that, for better or worse, the prime mover in global markets remains the US of A. So dont blame Shanghai.

Whatever Chinas culpability in SARS or avian flu outbreaks, theres no rational reason why a stock slump in China should strike fear in the hearts of investors beyond the Middle Kingdom. If the worlds largest consumer market falters, on the other hand, there will be shock waves, and they will ripple in the other direction across the Pacific, battering not only markets in China, but the many other Asian economies that continue to depend so heavily on US exports for growth.