KEEPING SCORE: The Shanghai Composite in mainland China surged 6.8 percent to 3,745.86 in the afternoon session after initially opening sharply lower.
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There have been signs of overheating in China for a while. However, investors are still grappling with deep losses as the index is 25 per cent off its peak on June 12. Chinese economic growth fell to 7 percent from January through March, the slowest quarter since 2009.
As one reader asked, could the market go much lower, and could the stock slump create incredible buying opportunities?
Rising stocks encouraged companies to raise money by issuing shares and to use the proceeds to pay down debt. As indicated by Scott Kennedy of the Center for Strategic and global Studies, more than a quarter of China’s stock-market capitalization is supported through borrowed funds.
“I’m anxious and happy at the same time”, said Shanghai resident Ella Hong, who plowed 300,000 yuan ($31,400) into six companies starting in May, just before the market turned. But analysts said the increased shares overwhelmed the market and pushed down prices.
But the Chinese government isn’t allowing the market correction many say is necessary. They announced a plan to lend billions to Chinese brokerage firms. Controlling shareholders and board members were also barred from reducing share holdings via the secondary market for six months.
Many of them were run by insiders of dubious managerial talent.
People study stock prices at a bank in Hong Kong, Friday, July 10, …
The importance of the Composite lies in the fact that millions of Chinese citizens have invested large proportions of their savings in shares on the stock market. The IMF’s Blanchard said most Chinese investors didn’t spend their paper gains as stocks rose, so they shouldn’t have to curb spending now. Outside investors have only been able to access the Chinese stock market since October, and that required purchasing stock in Hong Kong.
“The stock market has never been fully aligned with the fundamentals”, said Yukon Huang, senior associate at the Carnegie Asia Program in Washington.
Greece’s new proposals included a tax hike on shipping companies and scrapping tax breaks for its islands, as well as a higher value-added tax for restaurants and a firm timetable for privatisations.
CHINA TURMOIL: In China, frantic efforts by authorities to stop the nearly monthlong slide in the country’s stocks appeared to be giving the market an artificial bounce, analysts said. The percentages, though, are small.
Other economists disagreed that the tumult in the stock market was likely to have a big impact on consumption. The majority of these investors are not even high school graduates.
Her experience illustrates how China’s novice investors tend to be the biggest losers in the event of a market meltdown.
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The extensive measures halted China’s move toward liberalizing its state-dominated economy and reveal the government’s fears financial instability could lead to social unrest. Regarding this question, it’s frankly too soon to tell.
