What does the recent Chinese stock market fall reveal?

Livewire News


Andrew Sheng, Distinguished Fellow, Fung Global Institute and Xiao Geng Director of Research, Fung Global Institute highlight that the recent volatility represents a natural market correction. The article argues that highly leveraged markets are unstable and unsustainable and that, “In China’s case, the government interventionist approach is exacerbating the problem. Market intervention may limit the scope of losses in the short term, it undermines markets’ ability to self-correct”. "Allowing the stock market to develop was not the wrong move. At the end of 2013, when the Shanghai index was 2,116, the Chinese debt market amounted to 256% of GDP, and stock-market capitalization was 36% of GDP, implying an unsustainable crude leverage ratio of 7.2:1. When the stock market rose to its peak of 100% of GDP, the leverage ratio fell to 2.6:1, closer to the ratio of 2.2:1 in the United States." China’s economy has succeeded through trial and error, and the lessons of its current stress test should be viewed as part of that process, to be used to drive the next phase of economic reform. (VIEW LINK)

2 topics

Livewire News
Livewire News

Livewire News brings you a wide range of financial insights with a focus on Global Macro, Fixed Income, Currencies and Commodities.


No areas of expertise

I would like to

Only to be used for sending genuine email enquiries to the Contributor. Livewire Markets Pty Ltd reserves its right to take any legal or other appropriate action in relation to misuse of this service.

Personal Information Collection Statement
Your personal information will be passed to the Contributor and/or its authorised service provider to assist the Contributor to contact you about your investment enquiry. They are required not to use your information for any other purpose. Our privacy policy explains how we store personal information and how you may access, correct or complain about the handling of personal information.


Sign In or Join Free to comment