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Dow Jones hitting 10,000 points

15:43, October 16, 2009

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By Li Hong, People's Daily Online

Investors are euphoric over the Dow Jones recapping five digits this week, more than a year after getting clobbered by a sudden implosion of the financial system. Many are overly upbeat about the world economy making a robust comeback, and cannot wait to bait big on the equities in their hastening chase for wealth.

For the huge number of individual investors worldwide, the rush for big returns of investment may not bear fruit in the end. To put more of one's hard-earned eggs in equities at this moment when the average rise of major stock markets is no smaller than 30 percent from their dearth, will prove to be too much risk-taking and imprudent, if not gambling.

The chance for the market to make continuously solid gains after a sprint from the ebb since last March is slimmer, economists believe. Now isn't time for being exuberant but taking caution. The sizzling surge in the past 6 months is feared to greet a hiatus.

It is true that global economy is stabilizing and the heavyweight ones like the United States and China have shown signs of a tentative recovery, but uncertainties remain, clouding the prospect of a sustainable bounce back to pre-crisis levels. Consumers are kept timid who tend to snap shut pockets while shopping in stores, amid a murky picture of unemployment which could worsen in the following months.

If history is any reminder, once a milestone of 10,000 points is reached, it needs a few weeks, if not months, to consolidate. The majority of market watchers are cautiously optimistic about the coming days, but the possibility the economy could take a u-turn and go down again hasn't been eliminated yet. After all, the recovery in the United States, the world's economic locomotive, is fragile, as consumers there are traumatized by the crisis and not enthusiastic about spending at all.

As America's Main Street struggles in the sand, and the jobless rate is predicted to go up to 10 percent in the first half of 2010, the big American banks, major drivers of Dow Jones, have reported in the newest quarterly report they are now making money. However, a closer look into the books finds that the lenders' profits originate from trading stocks, bonds, precious commodities like oil and gold and other assets, while not from lending, refinancing homes and other traditional bread-and-butter business.

Some fear that the banks' lopsided operation doesn't bode well for the sector as questions linger what happens if trading profits fall off. That is more likely if the stock market heeds the jitters of uncertainties and goes down. And, the American mortgage market remains bearish, though some tech companies have reported increasing sales.

China seems in a better shape as a proactive fiscal policy and monetary relaxation has led to mammoth government investment into infrastructure, which has buoyed domestic spending of steel, cement and other basic materials. In recent months, consumers gained confidence in the government's job-boosting measures and started to buy houses and other items.

However, investors keep vigilant of the country's notoriously volatile stock market, as earlier gains have eroded, partly because of the government's massive outpouring of new IPOs diluting the nascent market rally in the first half year. The Chinese stock market is directionless now, as investors face huge difficulty to judge the trend of the economy, which might strengthen further but the prospect of inflationary pressure is sure to invite interest rate rises from the central bank.

The articles in this column represent the author's views only. They do not represent opinions of People's Daily or People's Daily Online.

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About this column

After 19 years working for China Daily and its website, Li Hong moved to english.people.com.cn in March 2009.

Li has been a reporter and column writer, mainly on China's economy and politics.

He was graduated from Beijing Foreign Studies University, and once studied in University of Hawaii and the Poynter Institute in Florida.

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