On the last trading day of August, stock markets in Shanghai and Shenzhen experienced another huge drop, with the Shanghai market falling over six percent and Shenzhen over seven percent. These percentage drops are the highest recorded since June 10, 2008. The stock markets around the globe immediately started to experience the pain, with major stock indexes in Europe and America all falling.
The Shanghai index closed at 2667.74, the lowest point during the day. Compared with the day before, the index fell 192.92 points, which translates to 6.74 percent. It is the biggest one-day drop in the past 15 months. Shenzhen index closed at 10585.08 points. That was a drop of 864.99 points, 7.55 percent.
Market analysts believe the reason for the plunge is that investors were worried about the issuance of new stock shares by Metallurgical Corporation of China Ltd, scheduled to take place soon, according to Voice of America. In addition, many other corporations plan to issue new shares in the following months. Investors fear these new shares may adversely affect China’s stock market.
Another possible reason comes from the hearsay that banks plan to tighten lending standards. Many analysts feel the previous bull market in China is the result of enhanced market liquidity, which in turn, was a result of economic stimulus policies. Thus, the bull market is not a true representation of China’s economic status quo. These analysts believe that as stimulus spending comes to an end, banks will tighten lending, and the stock market bubble will burst.
The plunge of China’s stock market sent waves to global markets. On Monday, all European markets started to fall. Frankfurt DAX stock index fell 1.1 percent to 5,458.04 points, France CAC-40 fell 1.07 percent to 3653.34 points. London’s stock market was not open due to a public holiday.
The major stock indexes in the U.S. dropped at opening, and went up a little at closing. At closing, Standand & Poor’s index dropped 0.81 percent to 1,020.62; Dow Jones Industrial Average dropped 0.50 percent to 9,496.28; NASDAQ composite index dropped 0.97 percent to 2,009.06
Affected by Shanghai stock market, Hong Kong Hang Seng index dropped 1.8 percent. It has been hovering at a low point for a month now.
Australia stock market fared better with a drop of merely two percent. The stock of Australia & New Zealand Banking, the fourth bank in Australia, jumped 4.1 percent.
Market analysts think the worries investors have for China’s economic recovery will continue to grow, and that consumers will still feel uncertain about the global economic recovery. This is a manifestation of how China’s economy has come to play an increasingly important role in the global economy, as the world’s third largest.
Read the original Chinese article.