2015 Chinese stock market crash

The ChineseSTOCK MARKET  crash began with the popping of the stock market bubble on 12 June 2015.[2] A third of the value of A-shares on theShanghai Stock Exchange was lost within one month of the event.

Causes[edit]

In the year leading up to the crash, enthusiastic individual investors inflatedTHE STOCK MARKET  bubble through mass amounts of investments in stocks often using borrowed money, exceeding the rate of economic growth and profits of the companies they were investing in.[2] Investors facedmargin calls on their stocks and many were forced to sell off shares in droves, precipitating the crash.[3]

By 8–9 July 2015, the Shanghai stock market had fallen 30 percent over three weeks as 1,400 companies, or more than half listed, filed for a trading halt in an attempt to prevent further losses.[4] Values of Chinese stock markets continued to drop despite efforts by the government to reduce the fall.[5][6] After three stable weeks the Shanghai index fell again on 27 July by 8.5 percent, marking the largest fall since 2007.[7]

Effects[edit]

Money magazine estimated that the potential negative impact on the United States stock market may come about when Chinese investors begin to seek out relatively stable U.S. investments in treasuries, stocks, and cash, and further strengthen an already-strong U.S. dollar, thereby raising the prices on U.S. goods and diminishing export profits.[8]

Global companies that relied on the Chinese market suffered from the crash. Stocks that they own were devalued US$4 trillion. For example, French alcoholic beverage company, Rémy Cointreau, and British luxury-goods company, Burberry, saw their shares devalued and declining demand of their imports from Chinese distributors. Second-quarterSALES  of American fast food company, Yum! Brands, in China dropped 10 percent, resulting in revenue going under the company's estimate. South African ore mining company, Kumba Iron Ore, eliminated itsdividends on 21 July as the 61 percent loss of profit in the first half of the year was announced.[9]

Government response[edit]

The Chinese government enacted many measures to stem the tide of the crash. Regulators limited short selling under threat of arrest.[10] Large mutual funds and pension funds pledged to buy more stocks. The government stopped initial public offerings. The government also provided cash to brokers to buy shares, backed by central-bank cash.[11] Because the ChineseMARKETS  mostly comprise individuals and not institutional funds (80 percent of investors in China are individuals [12]), state-run media continued to persuade its citizens to purchase more stocks. In addition, China Securities Regulatory Commission (CSRC) imposed a six-month ban on stockholders owning more than 5 percent of a company's stock from selling those stocks, resulting in a 6 percent rise inSTOCK MARKETS .[13] Further, around 1,300 total firms, representing 45 percent of the stock market, suspended theTRADING OF STOCKS starting on 8 July.[14]

Forbes contributor Jesse Colombo contended that the measures undertaken by the Chinese government, along with cutting the interest rate, "allowing the use of property as collateral for margin loans, and encouraging brokerage firms toBUY STOCKS  with cash from the People's Bank of China" caused Chinese stocks to begin surging in mid-July. He argued that in general, however, the outcomes of government intervention as it relates to the crash will, by its nature, be difficult to predict, but saying that in the longer term, the effect may be the development of an even larger bubble through creation of a moral hazard.[10]

On 11 August, two months after the crash, the People's Bank of China devalued the renminbi by 1.86 percent to CN¥6.2298 per US dollar.[15] On 14 August, the central bank devalued it to CN¥6.3975 per US dollar.[16]

Black Monday, and Tuesday[edit]

Main article: Chinese black monday

On August 24th, the Shanghai main share index lost another 8.49%. As a result, bilions of pounds were lost on international stock markets with some international

commentators labeling the day 2015 Black Monday.[17][18] There were similar losses on Tuesday, leaving the market up 33% for the year.[19]