As buoyant as world markets were overnight – one wasn’t and its the one that everyone is now eyeing, nervously – no matter the new highs on Wall Street.
And that is the Chinese markets – volatility is increasing with another bout of wild trading swings.
China’s stock markets slid yesterday, with highflying startup stocks suffering one of their nastiest days on record and analysts turning increasingly wary of what they see as a bubble in the country’s equities.
The Shanghai Composite closed down 3.7% at 4785.36, while the smaller Shenzhen market fell 3.6%, extending a bout of volatility that began in late May.
Shanghai is now headed for its worst week of the year with a loss of 7.4% since last Friday.
It has been here before, but it rebounded after briefly falling into correction territory in late May. In contrast, the Hong market was only down 0.2% yesterday.
Marketwatch.com singled out for special attention the ChiNext index which tracks small startup stocks, fell 6.3%.
Marketwatch said that was “its third-largest drop since the market began in 2009 and its biggest since 2013 – after nearly tripling in the past year. The ChiNext is now extending its collapse in correction territory, having dropped 10% by Tuesday from its record high on June 3.”
The increasing volatility has come amid small signs the Chinese economy is close to bottoming out as various stimulus measures start working – especially in housing (see separate story). That might be thew cause of some of the volatility, but the greater fear is that so much money is now invested in the market via margin loans, that a bubble is forming which could explode and damage the economy.
Certainly Chinese market regulators are working hard to avoid this, tightening rules on margin lending and buying and warning brokers not to engage in illegal, off the books stock lending and margin trading (which is confirmation that it is happening, just as ‘black’ economy lending for property occurred during the now deflating housing boom.
