Pundits attribute China’s stock market struggles to two factors -- China’s central bank has withdrawn cash from the markets, and its government has stepped up regulations affecting the education and technology industries. The Chinese government appears to want a stock market correction.
Full Answer
What has happened to China’s stock market?
China’s stock markets had previously been among the highest performing in the world, and had hit a seven-year peak in the middle of June. The Shanghai stock market had surged more than 150% in 12 months. What was behind the dramatic rise in shares?
Will China’s stock market turmoil spill into the real economy?
Investors and policymakers around the world are looking on with growing concern that turmoil in the stock markets will spill into China’s real economy, the second-largest in the world and a huge engine of global growth. But weren’t China’s stock markets soaring just a few weeks ago? They were.
Will China intervene in the US stock market to limit losses?
A Hypothesis The US stock market is thriving while China’s stock market deteriorates. China could intervene to limit stock market losses, but it is not. Is China purposely losing a battle in order to win a war? Win the battle, lose the war -- Pyrrhus of Epirus, Greek king and statesman in 270 BC
Is China propping up its stock and bond markets?
Unlike the U.S., China is not propping up its stock and bond markets with massive amounts of money, as shown in the following graph. Money supply in China has remained stable while it has increased five-fold in the U.S., and there is another $4.5 trillion awaiting U.S. legislative approval.
How the Chinese government rescued its stock market
Since the start of July, the Chinese government — and private parties acting with government encouragement — took a number of dramatic steps to reverse the stock market's decline:
The Chinese government can make the stock market go up if it really wants to
In the United States, the government doesn't have much control over stock prices. President Obama can't ban people from selling shares, nor could he order the Federal Reserve to finance loans so people can buy shares.
China really needs to give markets a bigger role in allocating capital
China needs a functioning stock market in order to improve the performance of the Chinese economy. The country's economy is still too dominated by habitually money-losing state-owned enterprises.
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What happened
Chinese regulators went to work over the (American) holiday weekend, and the results of their work became clear just as soon as U.S. markets opened back up for business Monday. Simply put, Chinese tech stocks listed in the U.S. are getting destroyed.
So what
The bad news began with another company, not on this list -- recent IPO and China's answer to Uber, ride-sharing app DiDi Global ( DIDI -0.73% ). That company got slammed over the holiday weekend by a Chinese order to halt registering new users while local regulators examine its data security practices.
NASDAQ: BIDU
On Monday, China announced it is investigating data collection and security practices across a raft of Chinese companies with overseas listings. Then on Wednesday, China announced a series of anti-monopoly fines, too.
Now what
Indeed, China already appears to be moving in the direction of stricter enforcement, announcing Thursday that it plans to institute "further regulation of Chinese payments companies," for example.
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Why has China doubled down on its efforts to prop up equity prices?
Mark Williams, of the consultancy Capital Economics, said: “China’s leadership has doubled down on its efforts to prop up equity prices, because it believes that its own credibility is now coupled to continued gains on the markets.” .”.
Why are Australian stocks selling off?
The worry is focused on Australia’s miners, because demand for Australian iron ore and coal will fall if the Chinese economy suffers.
What happens if margin calls continue?
If those margin calls continue, investors will have to offload other assets to come up with the cash they need.
Is the stock market rout in China a threat?
Potentially, the stock market rout in China, with all the political, social and economic risks it entails, could turn out to be a much bigger threat to the global economy than the debt crisis in Greece.
Is margin call exclusive to Chinese markets?
Margin calls are in no way exclusive to Chinese markets. But the mix of investors is unusual compared with most global markets. As brokerages have lapped up people’s appetite for borrowed money and stock market bets, more households have become exposed to the risk of a stock market correction.
Is the FTSE 100 sensitive to China?
The FTSE 100, where several big miners are listed, has been sensitive to weaker economic news out of China in recent months. The British chancellor, George Osborne, used his budget on Wednesday to highlight the external risks to the British economy, which include China. China is the UK’s sixth-biggest export market and exports to ...
Is the stock market tumbling in China?
Stock markets in China are tumbling. A three-week plunge has knocked about 30% off Chinese shares since mid-June. China’s securities regulator has warned of “panic sentiment” gripping investors, many of whom are individuals that have borrowed heavily to play the stock market. Hundreds of Chinese companies have suspended dealings in their shares in ...
Why are Chinese stocks in red?
The stocks of nearly 200 companies that call China home are in the red on Tuesday, many because regulators in that country cracked down on a number of U.S.-listed Chinese stocks.
How long has Rich been a Fool?
Author Bio. Rich has been a Fool since 1998 and writing for the site since 2004. After 20 years of patrolling the mean streets of suburbia, he hung up his badge and gun to take up a pen full time.
Is Kanzhun being investigated?
Both Full Truck Alliance and Kanzhun are being investigated by regulators after listing their stocks in the U.S., while UP Fintech and Bilibili are simply collateral damage brought on by the downdraft.
