Problems Faced By the Chinese Share Market
An economic share market bubble is a situation where stock prices have been driven up by bulls in the market to an inflated value. For a while now the Chinese stock market was driven by a long term Bull Run which meant that stock prices were inflated and the Chinese stock market was not representing the actual health of the economy and was in a stock market bubble. This bubble began to burst in June 2015. In the last three months or so, the stock market bubble in China has well and truly burst and trillions of dollars have been wiped out not just from the Chinese economy but also from the global markets. Stock markets are not always a direct indication of the health of an economy but this crash does again ask questions of an economy that is well and truly slowing down. The following are some of the details of the problems faced by Chinese economy and also by their stock market over the last few months:
Chinese Stock Market Crash 2015:
• Chinese Stock Market was an attractive investment option for a lot of citizens of China over the last few years. Many individual investors invested in the Chinese Stock market mostly on borrowed money. This caused the stock prices to inflate disproportionately to the rate of economic growth of the companies listed on the Shanghai Stock Market.
• The correction in the market was expected for some time now and as the bubble began to burst, investors especially, individual investors panicked and there have been massive sell offs over the last few months by investors to cut their losses.
• There have been some days that have seen massive crashes on the Shanghai Stock Market and the global markets during this time period. August 24th was a Black Monday for the Chinese markets where the Shanghai Stock Market was down by more than 8% followed by losses at a similar level the next day. Global markets also tanked due to this and overall trillions of dollars have been wiped out of the global economy over the last few months.
• The government of China did bring in some restrictions on trade and measures to control the fall of the markets. Also the People’s bank of China devalued its currency the Renminbi to help the Chinese economy by making its exports more attractive in the global markets.
Chinese economy is slowing down and the stock market bubble has burst. This will have long term implications on the global economy in the years to come.