Analysis: China’s Stock Markets in Freefall

RMB, CC Flickr David Dennis, modified

What Is Happening?

The Shanghai Composite Index has been shedding value since mid-June, when it reached its 2015 high of 5,166 points. Since then the index has dropped to just 3,582 as of July 8 – a drop of over 30%. Hong Kong’s Hang Seng Index fell victim to bullish sentiment later, but it too has now entered a freefall, losing around 9% since last Thursday.

These drops are occurring just as Beijing makes moves to shore up market confidence (which China’s securities regulator warned is ridden with ‘panic sentiment’). The government took the unprecedented step of calling in representatives from 21 of China’s largest brokerages over the weekend and getting them to pledge 15% of their net assets, or around $26 billion, to buy stocks thus pumping liquidity into the market (this is but a drop in the bucket given the $3 trillion in value lost since June). They also pledged to hold off on selling their own holdings until the Shanghai Composite stabilizes at around 4,500.

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