Party crashers: China’s stock markets dive as Games begin

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The Olympic spirit apparently couldn’t find its way to the Shanghai Stock Exchange: The market celebrated the start of the Games by falling to new bear-market lows today.

So much for the government’s attempt last week to jawbone share prices higher -- or at least keep them from falling further -- to avoid embarrassment during the Olympics.

The Shanghai composite index suffered its biggest one-day loss since June 27, tumbling 121.86 points, or 4.5%, to 2,605.72, the lowest since December 2006. That left it down 57% from its record high of 6,092 reached last Oct. 16.

The Shenzhen market also took a pounding today. The composite index there plunged 5.6% to 747.34, also a new bear-market low.

Some investors evidently were betting that the government would announce new market-boosting measures before the Games, Bloomberg reports here. When no new handout materialized, the path of least resistance was down.

Other reports said investors were selling because of fear that the opening ceremonies would be disrupted by a terrorist attack (they weren’t).

The Chinese markets’ struggles show just how hard it is to revive investors’ interest after a bubble bursts. At its peak in October the Shanghai market was up 424% in less than two years.

But then, U.S. investors could tell the Chinese a thing or two about the aftermath of bubbles, couldn’t we?