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Never mind Greece, WTF is going on with China's plunging equity markets?
"Nothing to see here," reads the deck on Tufts Professor Daniel W. Drezner's washingtonpost.com post "The politics of China's stock market collapse," "just the meltdown of Chinese equity markets."
"So while every international affairs pundit and their mother are focused on the travails of an economy the size of Louisiana," Drezner begins his piece, "the second-largest economy is experiencing a teeny-weentsy stock market meltdown." He quotes from Fox Hu's Bloomberg report, adding dramatic emphasis for the sentence I've pulled out above:
Almost 200 stocks halted trading after the close on Monday, bringing the total number of suspensions to 745, or 26 percent of listed firms on mainland exchanges, according to data compiled by Bloomberg. Most of the halts are by companies listed in Shenzhen, which is dominated by smaller businesses.
The suspensions have locked up $1.4 trillion of shares, or 21 percent of China’s market capitalization, and are becoming increasingly popular as equity prices tumble. If not for the halts, a 28 percent plunge in the Shanghai Composite Index from its June 12 peak would probably be even deeper….
The rout in Chinese shares has erased at least $3.2 trillion in value, or twice the size of India’s entire stock market. The Shenzhen Composite Index has led declines with a 38 percent plunge since its June 12 peak, as margin traders unwound bullish bets (emphasis added).
The suspensions have locked up $1.4 trillion of shares, or 21 percent of China’s market capitalization, and are becoming increasingly popular as equity prices tumble. If not for the halts, a 28 percent plunge in the Shanghai Composite Index from its June 12 peak would probably be even deeper….
The rout in Chinese shares has erased at least $3.2 trillion in value, or twice the size of India’s entire stock market. The Shenzhen Composite Index has led declines with a 38 percent plunge since its June 12 peak, as margin traders unwound bullish bets (emphasis added).
Oops!
Well, it seems what's happened isn't quite as dramatic in real-world terms as it may appear, and doesn't really tell us anything significant about China's "real" economy, which was already known to be slowing down but shows no signs of being in significant trouble. For one thing, Chinese stock markets don't have anything like the importance of markets in the world's other major-player economies.
Chinese equity markets are pretty thin and small as a percentage of GDP compared to the developed world. Less than 20 percent of household assets were in the stock market. Financially, it would be difficult to argue that this is China’s Lehman moment.
Read more: http://downwithtyranny.blogspot.com/2015/07/never-mind-greece-wtf-is-going-on-with.html
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