The $600 billion reason why China’s stock market crash might get a whole lot worse – Finance

  • Chinese stocks have lost more than 30% of their value since the beginning of 2018.
  • Fears of a slowdown in the economy, a rise in debts and the influence of US President Donald Trump’s trade war played a role in pushing the Chinese market to a decline.
  • Nevertheless, a wave of forced sale of the company's shares could have seen the market decline even more.
  • Hundreds of Chinese companies use their shares as collateral for loans and are forced to sell when their stock price falls below certain levels.
  • Analysts believe that this trend is likely to exacerbate the major trends that are already observed in Chinese markets this year.

Perhaps the biggest financial market history in 2018 is a colossal drop from the grace of the Chinese stock market, have witnessed losses of more than 30% since the beginning of the year.

The fall, which showed that the Shanghai Composite base index fell to its lowest level in the last four years of this week, is usually explained through the prism of investors, realizing that the growth of blockbusters that China has enjoyed over the past decade is declining, and that things are likely to slow down to a strong, but not stellar, speed.

This opinion is compounded growing trade conflict between the US and China, which showed that the two largest economies in the world exchange tit-for-tat tariffs, which are now applied to products close to the total of $ 300 billion.

Many economists see that a trade war has a serious negative effect on growth in China, and JPMorgan said earlier in October that a full-scale trade war could have a 1% shrinking effect on the economy.

Although these two factors obviously play into life, there is reason to believe that another factor may soon occur, as well as to force Chinese stocks to penetrate even deeper into a bear market – a forced sale.

In China, hundreds of companies use their shares as collateral for loans, but when stock prices fall, they are forced to sell in order to maintain a certain balance on brokerage accounts used for lending to companies.

In accordance with Bloombergabout 4.18 trillion yuan ($ 603 billion) of shares were issued by founders and other major investors as collateral for loans, which account for about 11% of the capitalization of the country's stock market, based on calculations using the depository of China's securities and clearing Corporate data.

South China Morning Post, citing the Tianfeng Securities report, said earlier this week that more than 600 shares of the company fell to levels where forced sales may occur.

“This is a vicious circle: a fall in stocks leads to liquidation, and liquidation leads to a further decline in the share,” said Wang Zheng, Chief Investment Officer at Jingxi Investment Management South China morning post earlier this week.

"The recent decline, especially in small caps, is due to the problem of promises of equity."

! function(f, b, e, v, n, t, s) {
n = f.fbq = function() {
n.callMethod ?
n.callMethod.apply(n, arguments) : n.queue.push(arguments)
if(! f._fbq)f._fbq = n;
n.push = n;
n.loaded = ! 0;
n.version = ‘2.6’;
n.queue = [];
t = b.createElement(e);
t.async = 1;
t.defer = 1;
t.src = v;
s = b.getElementsByTagName(e)[0];
s.parentNode.insertBefore(t, s)
document, ‘script’, ‘’);
// Insert Your Facebook Pixel ID below.
fbq(‘init’, ‘418172165058436’);
fbq(‘track’, ‘PageView’);

/* <![CDATA[ */
var fbAsyncIds = [],
fbStatUrls = [];
$(window).load(function() {
$.getScript('', function() {
version: 'v2.6',
appId: '964432556951162',
cookie: '',
oauth: true,channelUrl:''
.each(function() {
window.fbAsyncInit = function() {
for(var i = 0; i */

Source link

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Accept Read More