Is there Turmoil Brewing in the Chinese Stock Market?

The stock market in China has caused so much turmoil globally for investors. Thursday, investors from all around the world became more anxious in the country’s currency and economy.

 

In the United States, major market indexes were down two percent for midafternoon trading. However, the Chinese stock market decreased by more than 7 percent. This forced officials to halt trading for the day for a second time in the week.

 

After the stock market turmoil, the Chinese authorities have suspended a market mechanism which is also known as a circuit breaker. The circuit breaker halted trading when a threshold was reached. The measure that was put into this week has been intended to stabilize the stock market. Even though it has been intended to stabilize the stock market, many investors are still heavily concerned about it.

 

            How Will the Stock Market Turmoil in China Impact the Rest of the World?

This is a very interesting question that has been on some investors’ mind heavily. The aftershocks of the turmoil has spread to Europe and the United States. The benchmark Standard and Poor’s 500 stock went down 2 percent. This was the lowest it had reached since October.

Apple’s shares went down 2.7 percent. Bank of America had a 3.5 percent decrease. The decrease of percentage for General Electric felled 3.6 percent. Freeport Morgan fell down more than 10 percent. The S&P 500 went down 1.3 percent on last Wednesday.

 

Even though the stock market went down for those companies, American investors do not seem concerned. In August a similar sell off occurred which had also created concerns about Chinese growth. The market indexes for the United States shows that the country is still above the lows that were reached in the summer. Many argue that the current problems in China will not affect the American economy.

 

Timothy M. Griskey who is a chief investment officer for the Solaris Group according to the New York Times stated to the New York Times, “We don’t see this as an issue for a major sell-off in the markets.” He also stated, “People are responding like there is nothing new here”.

 

The big fear that many people have is that China’s economy which is the second largest in the world is slowing down and slowing growth in other countries.

 

Derek Halpenny who is the European head of global markets research at Bank of Tokyo-Mitsubishi UFJ in London said, “Markets are in a panic over what’s happening in China.” He continued by saying “People are saying whoa growth is way worse than we were expecting this years” to the New York Times.

 

On Monday, a Chinese manufacturing report that was downbeat made stocks spiral. It previously prompted the country’s market to close early. As already mentioned, the turmoil caused the stocks in America and Europe to get hit.

Last Thursday, the renminbi which is the currency for China, continued to be in chaos. The renminbi is controlled by the Chinese government. Their government has been allowing the currency’s value to decrease at a fast rate in order to boost its economy.

 

This is a difficult process to manage. Individuals and companies are being forced into sending out money at a fast rate because of its failing currency. The failing currency is causing added pressure to be put on renminbi and unsettling investors.

 

Before the stock market opened on last Thursday morning, the central bank in China set the renminbi rate at 6.5646 to the dollar. This is the lowest it has been in almost six years.

 

Steven Hun, head of China strategy and Hong Kong and China equity research at HSBC stated in an interview with the New York Times, “People are worried about whether they are using currency depreciation to stimulate growth.” He further continued by stating, “At the end of the day, the question is do they have control? Everyone is asking that question.”

 

The fear is that the currency problems can set off a chain reaction. Traders expect to have greater declines as the currency keeps decreasing daily. The decreasing currency can cause further stock losses in China. If it causes further stock loses in China, then it can have a ripple effect globally.

 

Hao Kong who is the chief market strategist at Bank of Communications International who also spoke to the New York Times made a comment saying, “It’s getting into a stage where it is self-fulfilling, the weaker the yuan gets, the more selling there will be.”

The renminbi will provide an interesting test for the Chinese government. It will be interesting to see what steps will be taken in order for it to not have a ripple effect globally. China has a hard time managing the currency. Most of their investors are moving money out of the country before the power of the currency value derives even further.

 

The economy in China has been slowing down steadily. Since it has been slowing down, less people are investing there. The fourth-quarter growth is expected to be at 6.9 percent. Official numbers will be released later this month.