Stock Market Crash: Chinese Stocks Plunge 2.7% on Fears of Economic Collapse

Sharp Drop in Chinese StocksChina’s stock market crashed on Monday, July 6th, in spite of desperate attempts by regulators to calm investor sentiment and starve of an economic collapse.

Chinese regulators have adopted extraordinary measures to return stability to the nation’s financial markets. First, the central bank announced it would lower interest rates and the amount of reserves banks would be required to hold on their balance sheets. Then the regulators announced the working of a new fee standard that could lower transaction cost by 30% for China A shares. Moreover, authorities relaxed rules on margin calls, which was a surprise as they recently tightened the rules on margin lending.

In further efforts to preserve liquidity, regulators put a stop on initial public offerings

(IPOs). On Saturday July 4th, 28 companies that were planning to list their shares said they would suspend their IPO plans. Stopping new IPOs could free up funds that were tied to buying the new issues.


Also on Saturday, 21 of the country’s largest brokerage firms announced that they would buy at least 120 billion yuan (USD$19.3 billion) worth of shares in an effort to stabilize the stock market. The brokerage firms also said that they would not sell any stocks as long as the Shanghai Composite is below 4,500 points. Right now, the index is at 3,776 points.

The news did little to stem declines in equity prices. Chinese stocks opened the trading session higher on news that authorities would take the large measures necessary to prop up the stock market. However, investor enthusiasm soon faded. The Shenzhen Stock Exchange gave up nearly eight percent of its value intraday, finishing the trading session off more than 2.7% to 2,041.85.

The declines are just the most recent instance of volatility gripping the Chinese stock market. From June 12th to July 3rd, the Shanghai Composite Index plunged a staggering 28.6%. On several trading days, more than 1,000 stocks on the Chinese stock market tanked 10%, the maximum daily loss allowed by regulators.

Investors will be watching Chinese equity markets closely over the next few days. Contagion is a big concern, as defaults on margin loans could weaken the country’s entire banking system. If prices resume lower, authorities could be forced to introduce even more stimulus measures in order to starve an economic collapse.

How Safe is Your Portfolio from a U.S. Economic Collapse?

If you think what’s happening in China could never happen in America, think again. Only a few years ago, we came within hours of a full-blown stock market crash. In fact, it’s starting to happen again.

In a special investor presentation, Profit Confidential Editor-in-Chief Michael Lombardi outlines what the next financial crisis will look like, as well as how to protect your savings. To see the full story, check out his special report, “The Great Crash of15.” 20