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Shanghai and Shenzhen Stock Exchange RUBRIKA
Source: Bloomberg
leaving market forces to determine the Only on the stock exchanges in Shanghai
value of the currency. and Shenzhen US dollar 5 trillion were
wiped out. These conditions initiated
CRASH OF CAPITAL MARKETS government intervention in the capi-
In early April 2015, Chinese newspa- tal market without precedent. The ma-
jor shareholders in the companies were
pers published several headlines where prohibited from selling stocks, half of
they linked the growth of the stock mar- the quoted companies were allowed to
ket with the growth of the economy. By stop the trade in stocks and police in-
mid-June, Chinese stocks surged by 150% spection was introduced in the so-called
relative to the same period of the previ- short selling. The intervention included
ous year, thus adding a bit more sparkle a series of orchestrated measures to
to the perception of economic develop- maintain the growth of stock prices on
ment. This growth has coincided with Chinese stock exchanges, including an
the People‘s Bank of China‘s cut in the agreement with brokerage houses for
interest rates and reserve requirement supporting the capital market through
rates in response to the first signs of the purchase of stocks.
slower growth.
Borrowing by the government, compa-
Part of the main plan of the Chinese nies and households reached US dollar
government to improve the international 28 trillion (28 thousand billion), or 282%
status of China was quoting of the stocks of GDP according to the McKinsey Glo-
in the MSCI index, in order to attract ad- bal Institute. This is a ticking debt bomb,
ditional capital from the western devel- which led to cracks of the bubble in stock
oped countries. Part of this plan was the prices, and it is still going on unabated.
previous merger of the stock exchanges
in Shanghai and Hong Kong through a The slower growth of the Chinese
new trading link. economy and the financial crisis have al-
ready contributed to the general decline
Excessive borrowing by ordinary citi- in the prices of other stock exchange
zens in order to purchase shares, so- products, such as oil, nonferrous met-
called margin trading, was encouraged als and steel. Other industries based on
as well. At one point, the number of these products will face further contrac-
natural persons who buy on the stock tion.
exchange reached 90 million, with total
debt on this basis of US dollar 358 bil- There are no projections of how much
lion. can stock market indices fall, but in our
judgment and in accordance with tech-
And when trading seemed easy and nical indicators, additional decline of
unidirectional, starting from mid-June about 20 percent is possible.
the plummeting of the stocks began.
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