China’s stock market flails as over half of Chinese stocks stop trading.
Step aside Greece, China has bigger problems. China’s stock market is in such a fragile state that companies are refusing to trade.
Around 1,400 Chinese companies have frozen trading in order to “self-preserve”, according to state media. This means that more than half of two of China’s biggest exchanges, the Shanghai and the Shenzhen, are no longer trading.
Ayako Sera, a senior market economist at Sumitomo Mitsui Trust Bank in Tokyo, said: “Today is all about China, with Greece in the background now that it’s been given a new deadline. Shanghai’s early losses were like a cliff-dive, which had a huge impact on investor sentiment.”
China’s stock markets had previously been among the top-performing in the world with the Shanghai stock market seeing an increase of 150% in 12 months. In the past three weeks, the stock market has fallen 30%– including a plunge of 12% last week.
According to the Bespoke Investment Group, China’s stock markets have now lost $13.25 trillion, a sum larger than the entirety of France’s stock market and equivalent to 60% of Japan’s market.
The Shanghai Composite Index closed down 5.9%, while the Shenzen, comparable to America’s Nasdaq index and a key exchange for tech companies, fell to close down almost 3%.
The Chinese government has taken extreme steps to prevent further damage. A surprise rate cut was enforced in late June, followed by a halt on initial public offerings on exchanges by China’s securities regulator.
Last weekend, over 20 of China’s top brokerage firms made a public pledge to buy back stocks and funds in order to slow the stock market downfall. A minimum of 120 billion yuan (about $19.3 billion) is expected from the firms.
“The government is taking good care of the stock market,” said China’s vice commerce minister as he attempted to reassure investors earlier this week.
This has failed to calm nervous investors, with China’s stock market becoming wildly indecisive concerning an opening of 5%.
Both Shanghai Composite and Shenzhen indexes saw further downfalls on Tuesday.
Unlike most other stock markets, where investors are mostly institutional investors, in China, 80% of investors are small retail investors.
According to Christopher Balding, a professor of economics at Peking University, this is a concern for the Chinese government because it causes a “political risk”.
Balding voiced concerns about the losses on the stock markets causing a lot of people to lose money, leading the government to “worry about people protesting on the streets”.