The People's Republic of China, the world's second biggest economy is facing a major crisis today. With over 30% of the value being knocked off the Chinese market since the slump began in mid-June.
The crisis comes after the rallying of the Chinese markets as the:
Unlike most other stock markets, where investors are mostly institutional investors, in China, 80% of investors are small retail investors.All the above factors led to volatility in the markets.with Greece in the backdrop,the volatility in China is of great concern owing to the huge size of the china's economy.
The concerns are justified as in the last three weeks about $3 trillion ,which is more than 10 times the GDP of Greece($237 billion in 2014) or 1.5 times the GDP of India($2 trillion) has been wiped out from the chinese markets.
With the shanghai composite losing about 34% in 3 weeks and the number of chinese firms who want to halt their trading in the Shanghai and the Shenzhen Exchange reaching to above 1200 out of the total 2800 enlisted firms, some are describing it as the busting of the chinese bubble.
Effect of the Chinese slump on the world economy:
The crisis comes after the rallying of the Chinese markets as the:
1)county's central bank cut interest rates 3 times since November last year,
2)the rules regarding Margin trading were eased.
Margin trading has always been considered risky, but with the loosening of the reins, trading in stocks on borrowed money by mostly the retail investors of china increased.
Unlike most other stock markets, where investors are mostly institutional investors, in China, 80% of investors are small retail investors.All the above factors led to volatility in the markets.with Greece in the backdrop,the volatility in China is of great concern owing to the huge size of the china's economy.
The concerns are justified as in the last three weeks about $3 trillion ,which is more than 10 times the GDP of Greece($237 billion in 2014) or 1.5 times the GDP of India($2 trillion) has been wiped out from the chinese markets.
With the shanghai composite losing about 34% in 3 weeks and the number of chinese firms who want to halt their trading in the Shanghai and the Shenzhen Exchange reaching to above 1200 out of the total 2800 enlisted firms, some are describing it as the busting of the chinese bubble.
Effect of the Chinese slump on the world economy:
- Metal prices plunged with the crash in the Chinese markets and the strengthening of the US dollar.
- Asian markets as well as the US markets have also shown a slowdown.
- Commodities like gold, silver and platinum fell as a stronger US currency makes dollar dominate commodities more expensive for holders of other currencies.
- Crude oil prices along with coal, natural gas and iron ore price are trending lower.
- Aviation sector shares benefited with the fall in crude oil prices as it accounts for 50% of their operating cost.
2 comments:
first greece now china do you think the economy of other countries will also slowdown...btw nice analysis..
The economic crisis in china was due to their own misgivings and other countries can follow suit if they do not check the risky aspects like margin trading.
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