China's stock market crisis dissected in five points
1. Chinese Stocks Slide Into Bear Market
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The Shanghai Stock Index, of which individual investors account for about 80% of all trading, has dropped 32% from its June high, while the Hang Seng Index, which closely tracks the Hong Kong economy, is down 21% through 7/7. Both had been hovering at seven year highs.
2. Investors Dump China's Most Recognized Stocks
China’s biggest companies, many of which trade in the United States as ADRs, are feeling the chill. Familiar names including Alibaba (NYSE:BABA) and Baidu (NASDAQ:BIDU) are down 24% and 19% respectively through June 7.
3. China’s Government Scrambles to Stem Stock Dump
A bevy of Chinese officials stretching from the Central Bank to miscellaneous regulators are trying to stem the panic roiling the country's equity markets. Below is a loose timeline composed by Reuters.
July 8: Chinese regulators come out with another series of support statements and measures, most of them in the morning before market open, in particular raising margin requirements for short positions taken against the small-cap CSI500 Index, and making it easier for insurers to buy blue chips. The CSRC warns of "panic" and "irrational selling" in the market.
July 5: China state-owned investment company Central Huijin Investment Ltd says it has recently purchased exchange-traded funds (ETFs) to support the market and will continue to do so. The CSRC announces that People's Bank of China (PBOC) will inject liquidity directly to the state-backed margin finance company to stabilize the tumbling stock market.
July 4: China's top 21 securities brokerages pledge to invest at least 120 billion yuan ($19.33 billion) collectively to help stabilize the country's stock markets. 28 Chinese companies planning to list on the country's stock exchanges say they would suspend their initial public offering plans.
July 3: China Financial Futures Exchange (CFFEX) suspends 19 accounts from short-selling for one month, sources with direct knowledge tell Reuters.
July 2: The CSRC announces relaxation of rules on margin trading, lowering threshold for individual investors to trade on margins and expanding brokerages' funding channels. The CSRC announces setting up a team to look into illegal manipulation and investigate cases if needed.
June 29: China says it will allow pension funds managed by local governments to invest in the stock market for the first time, potentially channeling more than 1 trillion yuan ($161 billion) into the equity market.
The China Securities Regulatory Commission (CSRC) issues a statement, attacking pessimists for "talking down" the Chinese market and economy, urging investors to remain calm. July 1: The Shanghai and Shenzhen stock exchanges announce plans to lower securities transaction fees by 30 percent from August.
June 27: China's central bank cuts guidance lending rates and trims the amount of cash that some banks must hold as reserves.
4. China Sends Chill Onto Industrial Metals...Copper, Aluminum
China, the most populous nation, is also the biggest consumer of industrial metals including copper, which has dropped to the lowest level since 2009. Longtime trader George Gero of RBC Wealth Management notes, "Beijing’s efforts to underpin the share market have produced mixed results, with general weakness across commodities the result." He also points out that Aluminum is now “officially” a bear market.
5. Is China's Red Hot Economy Cooling?
China's economy, while slowing over the years, grew at a clip of 7% in 2014 and despite the recent turmoil in the equity market the outlook remains solid. China's economy is expected to grow 6.9% according to data compiled by Focus Economics. By contrast, the U.S. economy contracted 0.2% in the 1Q '15 as reported by the Commerce Department.