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Wealth Destruction On China Stock Markets

March 7th, 2016 Comments off

A recent statistic puts in perspective what has been happening on the major equity exchanges in China, the world’s second largest economy. In June 2015 the capitalization of China’s stock markets attained a peak value equal to ten trillion U.S. dollars. Eight months later, in February 2016, the figure had declined to 5.7 trillion dollars. This massive decline in value of 4.3 trillion dollars, represents a contraction of 43 percent – – close to half of the peak value of Chinese equities..

Losing more than forty percent of the value of the stock markets in the world second biggest economy in only eight months may not be attracting great headlines at present. However, what has been happening represents China’s unique version of the 1929 stock market crash on Wall Street that launched the Great Depression of the 1930s. Food for thought.

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China Stock Markets Open 2016 With Massive Implosion

January 7th, 2016 Comments off

For the second time in three days, China’s major bourses have had to stop trading in the early part of the trading session due to drastic sell-offs. Automatic circuit breakers suspended trading when the herd-like dumping of shares sent equity prices in a downward spiral at dizzying velocity. The Shanghai Composite Index declined by 7.3 percent; China’s other major stock index, the Shenzhen Index , lost 8.3 percent of its opening value.

During the course of 2015, Chinese stock markets suffered a number of devastating single-session declines, signaling problems with the Chinese economy and their inevitable contagion effect on the overall global economy. As I have noted in an earlier blog article (China Stock Market Crashing and Burning Before Our Eyes  http://www.huffingtonpost.com/sheldon-filger/china-stock-market-crashi_b_7752054.html ), the increasing instability of the Chinese equity markets will have profound  and highly negative implications for all major economies.

What are the likely implications for global economics in the light of the wobbly beginning for China’s stock markets in the new year? To begin with, the volatile character of China’s equity markets is a signal by investors of their deep anxiety over declining Chinese manufacturing alongside the weakening economy of the Eurozone, the largest single market for Beijing’s exports. It also may be a clear sign that a new global recession may be just around the corner.

There never was a real recovery to the catastrophic global financial and economic crisis that arose in 2008. For seven years, central banks have scaled back interest rates to just about zero, while sovereigns accumulated unprecedented levels of public debt to sustain extremely marginal levels of GDP growth, while the real unemployment rate among the major advanced economies stagnated at historically high levels. In effect, all the arrows in the policymakers’ quiver have been expended, leaving sovereigns virtually unarmed if forced to confront a new global recession.

The rout  in China’s stock markets may be the first signs of an annus horribilis for the global economy, with a virulent and economically devastating continuation of the Great Recession that never really ended. The one difference between 2008 and 2016 will likely stem from the implosion of China’s equity markets, as opposed to the sub-prime mortgage collapse in the United States, being the enabler of fiscal and economic crisis and germ of global contagion. An important distinction between 2016 and 2008, in addition to China replacing the U.S. as the center of gravity in a new global recession, is the international climate. The world is experiencing far more instability, multilateral tension and flashpoints than transpired during the initial period of the last global recession.  Geopolitical volatility converging with China’s stock market crash may lead to a global economic contraction that will exceed 2008 in its ruinous impact.

 

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China Stock Market Continues To Tumble

July 28th, 2015 Comments off

Monday, July 27 witnessed the largest fall in share prices in major Chinese stock markets, especially the Shanghai Composite Index, in a decade. The fall of more than eight percent was followed on July 28 by a further drop in China’s stock market by 1.6 percent. These declines come after the massive intervention in the stock market by Beijing, following significant losses in equity values a few weeks ago.

Having frozen much of the market, and injected massive cash allotments into listed shares, amplified by the China authorities compelling companies to purchases stocks, while forbidding the sell-off of shares in many cases, Beijing had thought the problem had been solved. As the past days show, however, central government intervention in the equity markets only temporarily stalled the deflating of this large Chinese asset bubble.

The volatility now existing in China’s stock markets illustrates the overall fragility of much of the Chinese economic model and its opaque financial underpinnings.

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