I wrote about the Chinese Sharemarket crash about six months ago and followed it up with this post in August. It appears clear that the steps taken by the Chinese authorities are not working and on the back of poor manufacturing data, increased debt and Middle East turmoil a further sell down of Chinese stocks is occurring. And the rest of the world is feeling the effects.
My first post said this:
The Chinese share market has recently shown strong signs of being a bubble. Following a sustained increase in share prices until July this year the market then hit severe turbulence, and previous gains have been well and truly wiped out.
Emergency measures were taken by the Chinese Government to slow down the sell off and showed how different the Chinese economy is to the US economy. Steps included the suspension of the sale of shares once their value dropped by 10%, the suspension of new IPOs, new cheap credit, Government agencies actively buying shares and a ban of share sales by major shareholders. A sign of how desperate the measures are that over half of all listed companies have the sale of their shares suspended.
But the turmoil in the stock markets has started again with the Chinese Market plunging 7% before trading was halted. The Guardian has reported on latest developments:
The FTSE 100 index had £38bn wiped off its value as global stock markets started the year with a rout sparked by fresh fears over the Chinese economy.
Investors returning after the Christmas break were greeted by turmoil on stock exchanges, with Germany’s share index posting its worst start to a new year on record and London’s FTSE 100 putting in its second-worst start. As European markets closed, Wall Street looked set for the sharpest new year losses since the 1930s.
The sell-off rippled out from China, where news of weakness in the vast factory sector and a faltering yuan sent Chinese shares on the CSI300 index tumbling 7%, forcing trading to be halted. There was further pressure on the country’s stock market as investors anticipated the end of a ban on share sales by big stakeholders this week.
The deep losses and the share suspension – which came on the first day that China’s so-called “circuit breakers” came into effect – helped send the FTSE 100 down 2.4%, or 149 points, to 6,093.
Germany’s Dax was down more than 4% and France’s Cac 40 fell 2.5%. Oil prices were also volatile as tension between Saudi Arabia and Iransent Brent crude soaring in early trade only for prices to fall later on.
The 7% trigger automatically suspends trading for the day.
New Zealand is not immune. The NZX has tumbled 1.35% as at the time of writing.
Things may get worse when the six month ban on the selling of shares by major shareholders ends later this week.