China’s stock market crash is now in its third week. In an attempt at stemming panic the Chinese government has provided money and an “offer” to financial companies to buy more stock. As of this writing there are few signs of the bottom:
HONG KONG—Contagion from the plunge in Chinese stocks spread Wednesday in a sign investors within China and overseas are losing confidence in Beijing’s ability to stem the slide in the country’s equity markets and manage its economic reforms.
Shares listed on the country’s main Shanghai market dropped 5.9%, deepening a slump that has seen the market fall by nearly a third since mid-June.
The gloom is no longer confined to stocks. The yield on China’s benchmark government bonds rose sharply, while investors unloaded billions worth of dollar-denominated debt issued by Chinese companies. China’s currency, the yuan, fell to a four-month low in offshore markets, while a global selloff in commodities continued, with oil down in early Asian trading and metals such as copper trading close to six-year lows.
The malaise in China stocks is spreading outward largely because Chinese policy makers have put their credibility at stake in a series of attempts to shore up the market that so far have borne little fruit. Unlike the global financial crisis of 2008, when panic spread through world markets as the complex links between major financial institutions unraveled, investors are taking fright from the fall in Chinese stocks because it has exposed Beijing’s limitations in the face of market forces.
I’m far from an expert on the Chinese stock market but I can’t help but wonder whether the Chinese authorities are solving the problem, trying to soften the landing, or whether their efforts are actually and perversely prolonging it? Is this the beginning of the Big Correction for the Chinese economy as a whole or is it just a bump on the road to an ever more prosperous and economically powerful China?
Update
Yves Smith has a good post on China’s stock market tumble. It really looks bad and she’s about as much in the dark as I am.
“Despite the recent tumble, China’s main stock index is up 72% over the past year and 10% since January.â€
Holy fuck!
As of this afternoon and based on the FTSE China 50 stock index, the Chinese stock market is about where it was in October of last year with no immediate end in site to its decline.
From what I have read, it is being driven by margin calls. A lot of companies borrowed using their stock as collateral.
Let’s party like it’s 1929.