Business

The $600bn reason why China’s stock market crash might get a whole lot worse

Money & Markets

  • Chinese stocks have lost more than 30% of their value since the start of 2018.
  • Fears of a slowing economy, rising debts and the impact of US President Donald Trump’s trade war have all played a role in pushing the Chinese market lower.
  • However, a wave of forced selling of company shares could see the market drop even more.
  • Hundreds of Chinese companies use their shares as collateral for loans, and are forced to sell when their share price drops below certain levels.
  • Analysts believe this trend is likely to exacerbate the major declines already seen in Chinese markets this year.

Perhaps the biggest financial market story in 2018 so far is the colossal fall from grace of the Chinese stock market, which has witnessed losses in excess of 30% since the start of the year.

The fall, which has seen the benchmark Shanghai Composite index drop to its lowest level in almost four years this week, is generally explained through the prism of investors realising that the blockbuster growth China has enjoyed over the last decade is on the wane, and that things are likely to slow down to a strong, but not stellar, rate.

Such a view has been exacerbated by the rise of the trade conflict between the US and China, which has seen the world’s two largest economies exchange tit-for-tat tariffs, which now apply to goods totalling close to a cumulative $US300 billion.

Many economists see the trade war having a major negative impact on Chinese growth, with JPMorgan earlier in October saying a full-blown trade war could have a 1% shrinking effect on the economy.

While these two factors are evidently at play, there’s reason to believe that another factor could soon come into play, and force Chinese stocks even deeper into bear market territory – forced selling.

In China, hundreds of companies use their shares as collateral for loans, but when share prices fall they are forced to sell in order to maintain a certain level of balance in brokerage accounts, used to lend the companies money.

According to Bloomberg, about 4.18 trillion yuan ($US603 billion,) worth of shares have been put up by company founders and other major investors as collateral for loans, accounting for about 11% of the country’s stock market capitalisation, based on calculations using China Securities Depository and Clearing Corporation data.

The South China Morning Post, citing a report by Tianfeng Securities, said earlier in the week that more than 600 company stocks have fallen to levels where forced sales may kick in.

“It’s a vicious cycle: share drops lead to liquidation and liquidation leads to further share drops,” Wang Zheng, chief investment officer at Jingxi Investment Management told the South China Morning Post earlier in the week.

“The recent declines, particularly in small caps, are blamed for the problem arising from share pledges.”

36 Comments

36 Comments

  1. Pingback: british dragon primobolan

  2. Pingback: detoxification

  3. Pingback: corey z

  4. Pingback: Best Drones Under $500

  5. Pingback: fun88.viet

  6. Pingback: hondaqq

  7. Pingback: web danh lo de

  8. Pingback: richard mille replica

  9. Pingback: Devops

  10. Pingback: affordable SEO services in Canada. 8. Search engine optimization services in Canada

  11. Pingback: 토렌트사이트

  12. Pingback: regression testing

  13. Pingback: rolex replica

  14. Pingback: omega replica watches

  15. Pingback: replique montre

  16. Pingback: bandar togel

  17. Pingback: sexual cannibalism in fishing spiders

  18. Pingback: Urban Nido Hyderabad Real Estate

  19. Pingback: buy ketamin powder online for sale overnight delivery in usa canada uk australia cheap legally

  20. Pingback: cavapoo puppies for sale

  21. Pingback: KIU-Library

  22. Pingback: สล็อตวอเลท ไม่มีขั้นต่ำ

  23. Pingback: sbo

  24. Pingback: nova88

  25. Pingback: ASC AR 15 7.62X39 30rd Mag SS Black

  26. Pingback: เพื่อนแท้ เงินด่วนขอนแก่น

  27. Pingback: website

  28. Pingback: to learn more

  29. Pingback: voir ce site

  30. Pingback: 홀덤사이트 추천

  31. Pingback: web link

  32. Pingback: blog link

  33. Pingback: is pure mdma a crystal or powder,

  34. Pingback: หนองใน

  35. Pingback: Buy Methadone Overnight

Leave a Reply

Your email address will not be published.

13 − 7 =

News is information about current events. News is provided through many different media: word of mouth, printing, postal systems, broadcasting, electronic communication, and also on the testimony of observers and witnesses to events. It is also used as a platform to manufacture opinion for the population.

Contact Info

Address:
D 601  Riddhi Sidhi CHSL
Unnant Nagar Road 2
Kamaraj Nagar, Goreagaon West
Mumbai 400062 .

Email Id: [email protected]

West Bengal

Eastern Regional Office
Indsamachar Digital Media
Siddha Gibson 1,
Gibson Lane, 1st floor, R. No. 114,
Kolkata – 700069.
West Bengal.

Office Address

251 B-Wing,First Floor,
Orchard Corporate Park, Royal Palms,
Arey Road, Goreagon East,
Mumbai – 400065.

Download Our Mobile App

IndSamachar Android App IndSamachar IOS App
To Top
WhatsApp WhatsApp us