Beijing’s attempts to crackdown on speculative trading in the overheated mainland stock markets have triggered a sell-off, panic among investors and ultimately, a stock exchange crash today, triggering significant spillovers for the global economy.
The long-anticipated doom landed Monday as stock markets in mainland China and, to a lesser extent, in Hong Kong, experienced a sharp decline after regulatory bodies in Beijing made a conscious attempt at curbing margin trading, as they were concerned with escalating risks to the nation’s financial system. Consequently, the Chinese stock market, overvalued on cheap credit, crashed in its biggest drop since 2009, driving a global demand for safe havens among investors, Sputnik reported.
Japan’s markets have grown as a result, and Europe and the US are posed for gains on the expected influx of capital, leaving mainland China.
The Shanghai Shenzhen CSI 300 Index slumped 7.56% by 1 pm several hours before the end of trading. The Shanghai Composite dropped 7.42%, Shenzhen Composite lost 3.11%, while Shenzhen Component declined by 6.68%.
Hong Kong’s Hang Seng also suffered, in part due to the existence of the Stock Connect scheme with Shanghai bourses, and also in part because of the political dependence on Beijing. Asia’s flagship stock exchange lost 1.58% by 1 p.m.
The rest of Asia-Pacific gained as investors’ money rushed in Japan, Taipei and Singapore. Tokyo’s Nikkei 225 added 0.89%, TOPIX rose by 0.64%, Taiwan Stock Exchange added 0.39%, Korea’s KOSPI edged up 0.77%. Singapore’s Straits Times Index added 0.18%. However, the general sentiment in Asia-Pacific is gloomy, as mainland China has been the principal source of growth in the region due to its huge volumes of resources consumption. Given that, the MSCI Asia Apex 50 Index slid by 0.73%.
Despite the newly found optimism in Japan’s stock markets, the crash in China is negatively affecting the former’s economy. The yen rose 0.3% to 117.15 against the dollar on the influx of investment money in Japan, hitting exporters and adding to the deflationary pressure of cheap energy.
“The slide in Shanghai stocks is leading to yen buying,” Yuji Saito of Credit Agricole in Tokyo told Bloomberg. “With risk sentiment deteriorating right now, anything obscure will lead to reducing positions.”
Tomorrow (Tuesday), China is releasing a report on GDP growth, and it is expected to have slowed down to 7.2% in Q4, meaning the expansion of mainland’s economy in 2014 fell short of the government target of 7.5%, the lowest since 1990. China’s stock markets are likely to shrink further if such allegations are confirmed.
