China's stock market takes a dive Friday
Chinese investors watched in distress as stocks sank by more than seven percent in trading Friday, marking the biggest drop in five months and stoking fears of a peaked market, .
For weeks, about a looming end to China鈥檚 longest ever bull run, a market characterized by strong investor confidence, a sustained uptick in stock prices, and the expectation that the rise will continue. The country's economic boom so far has lasted 935 days, Friday.
The benchmark Shanghai Composite index dropped by 7.4 percent to 4,192.87, a 19 percent descent from this year鈥檚 June 12 peak, .
The dismal performance followed the Chinese markets' worst weekly performance since 2008 a week ago,聽. The Shanghai Composite fell by 6.4 percent, and overall took a 13 percent drop during the week.
鈥淭he concern is that a stock market collapse this year, as the rest of the Chinese economy is struggling to recover, might damage Chinese consumers鈥� confidence, their willingness to buy other things,鈥� Shanghai correspondent Pete Sweeney.
In addition to affecting trade with foreign companies, losing consumer confidence could lead to sweeping consequences for China鈥檚 retail-dominated economy, according to analysts.
Hans Goetti, Head of Investment in Asia at Banque Internationale A Luxembourg, :
The Chinese market has rallied tremendously this year but we have to remember one thing. It is a market that is dominated by retail investors. In fact, 80 percent of聽investments聽in China are done by聽retail investors聽and, accordingly, margin debt has gone to the stratosphere. This has led to some worries by the securities regulators to reduce margin debt, hopefully, without crashing the market. Now that is a tall order.
Michala Marcussen, global head of economics at Soci茅t茅 G茅n茅rale, that it was important to keep Friday鈥檚 events in perspective. 鈥淭o my mind, what鈥檚 happening now is probably not a bad thing from a long-term perspective,鈥� she said, citing the spike in China鈥檚 equity prices this year by almost . 鈥淎 bit of a healthy adjustment.鈥�
Ultimately, the 鈥渢remendous transitions鈥� in the Chinese economy will continue to be a fundamental of the market going forward, Ms. Marcussen said.
that the triggers for Friday鈥檚 tumble are far ranging, from 鈥渢ighter cash supply鈥� to 鈥渁nxiety about policy direction.鈥� Another concern: China鈥檚 initial public offerings (IPO) frenzy, which can perhaps best be evidenced by the jaw-dropping bids received by China National Nuclear Power Co., the country鈥檚 second-largest atomic power operator. The company, which had asked for $2 billion, raked in bids of $273 billion, .聽Reuters reports it eventually raised $2.1 billion --聽since 2011.
鈥淭he IPO boom in the Chinese market is such that more than 50 IPOs listed or were approved by the CSRC (China Securities Regulatory Commission) over the past two weeks,鈥� .
Going forward, 鈥渢he big question for the Chinese authorities is whether they鈥檙e going to prop up the market,鈥� . 鈥淭here could be a 50-50 chance of some kind of intervention in the market, either directly or through policy support to shore up confidence.鈥�
