China's benchmark index, the Shanghai Composite, plunged by almost 8% last Monday, its worst one-day slide in almost seven years, after regulators banned three major brokerages from opening new margin trading accounts for three months. "It was essentially a giant margin call on a highly leveraged market," says Aaron Back in The Wall Street Journal.
The government could raise the tax on equity trading. And it's not clear that the state will stimulate the slowing economy. Still, valuations remain reasonable for long-term investors wanting to bet on China's potential.
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