In the previous weeks, amid the endless talks about Greece and its new bailout plan, another crisis has developed on the market as China’s stock market crashes.
Many of us are wondering how a strong market like China experiences such a devastating loss after being up 150 percent. Looking back a year ago, many investors have actively invested in stocks, outpacing the economic growth rate and profits of companies which further led to an inflation of the stock-market bubble.
As a result of the swelling investments in the stock market, many investors received a maintenance call on their shares, forcing many individuals to sell off their stakes.
The inflation and sell-offs carries on and by July 2015, the Shanghai Composite, one of China’s major markets, slipped 30 percent as more than half of the listed companies have requested to cease trading to prevent additional losses.
The Chinese government is very much aware of the situation and conducted a variety of preventive measures. However, their efforts fell short as the Chinese stock markets continue to decline.
Effects On Metals Market
At first, people may not understand how the issues in the Chinese stock market can greatly affect industrials and precious metals. But looking into the matter deeply, it is easy to realize that a problem in one asset class can endanger another.
As seen in the previous week, China is a causing anxiety in the metal markets and brought down commodity prices, which resulted to a weaker economy and currency for oil-producing countries.
The metal stocks distinctly slipped on July 8, following the overnight commodity sell-off triggered by the falling market. Reaching its lowest level in six years, copper prices declined to $5,318 a ton.
How Did The Government React?
In order to avoid further damages, the Chinese government has implemented some regulations in short selling. Chinese authorities also suspended almost half of share listings and also barred initial public offerings for the meant time.
In addition to these strategies, the government also allowed 21 brokerage companies to borrow 260 billion yuan to buy shares and declared another 250 billion yuan stimulus package.
Will China's Market Bounce Back?
As of now, things are looking good for China as its economy had an annual gain of 7 percent in the second quarter.
The results of the Chinese government’s actions have reflected in the recent sessions with figures and monthly activities that indicate significant improvements.
With the reports turning out to be better than expected, investors are starting to question the accuracy of the official data.
Though the actual developments in the Chinese economy appear to be slower compared to the reported figures, the country’s economy is showing notable signs of stability.
In the London trade, copper gained on Wednesday. Copper prices rose to $5,595, reclaiming some of Tuesday’s losses.
If the Chinese stock market continues on an upward phase, they will soon be able to regain economic balance and bounce back from the previous crisis. Many factors can affect its recovery; therefore, investors should keep a close eye on the movements in the Chinese stock market and its underlying effect on the global market.