China drops as government warns about risk

Adding to the mix, on Wednesday former Federal Reserve Chairman Alan Greenspan warned that there's going to be a "dramatic contraction" in Chinese equities and that the current surge on the Chinese stock market is unsustainable. The Shanghai Composite Index, which tracks all listed shares (A shares and B shares) on the Shanghai Stock Exchange, opened higher but closed down 0.5% at 4,151.13 points. The index has gained 55% on the year.

The Shanghai A-share Index ended down 0.5% at 4,354.44 points. It's up 55% on the year. China's A-share market is open mostly to Chinese nationals. The Shanghai B-share Index, which tracks foreign-currency denominated stocks, tumbled 8% to 297.56 points on Thursday. The index is up a whopping 129% on the year.

Weighing on stocks was a notice from the China Securities Regulatory Commission, which asked brokerage firms Thursday to start educating investors about the risks of opening trading accounts. The commission also asked brokerages to take appropriate measures to understand the financial situation of their clients, such as their income, properties, and risk appetite.

The stock market boom in China is driven primarily by domestic retail investors, most of whom have very little knowledge about investing. In a recent survey by ChinaHR.com, just 19% of 2,500 office workers polled said they had a strong understanding of the stock market, while 56% said they have only a superficial knowledge of investing, according to a report in the Shanghai Daily.

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