Truth behind Chinese Market Meltdown

Chinese share prices have lost one third of their value since mid –June. It is stretching into its 3rd week. Hundred of Chinese companies have suspended dealings in their shares in a bid to arrest a frency of sellings. Chinese economy is world’s second largest economy. Investors and policy makers around the world are looking on with growing concern.

Dramatic rise –

Chinese margin debt balances have dropped with today’s 8.5% collapse the target in history. Other stock markets in the world where investors are mostly institutional more than 30% of investors in China are small retail investors. The reason behind the fallout is that maximum investments are lended through bank. Law liberalizing the stock market also made it easier for funds to invest and for firms to offer shares to the public for the first time. The past 6 month have soon a record number of buinesses listed on the shanghai and shenzhen rich.

Reason behind the market turn –

Different analyst around the world warns that dramatic rise in China stock market coas driven by momentum rather than fundamentals. Even China’s security regulator accepted that market had becomes weak.

Problem with investors –

About 1300 companies have suspended their shares almost half the market, some company have used their own stock as collateral for loans and they want to lock in the valuefor the colleteral.

Chinese government and regulators role –

Beljing has supported a series of market operations to halt the sharp decline but each one has been criticised for failing to restore market confidence.

Analyst view –

Analyst say the government sees the strength of the Chinese stock market as a sign of its own clout.

Economic backdrop –

China’s economy is losing its way. GDP rate is halved from 14% to 7.4% last year. But analyst is divided over the scale of the risk to the economy from the stock market.