Financial turmoil in China could ignite a stock market crash and possible economic collapse in 2015. At least, that’s the opinion of famed analyst Jim Rickards.
“My point is, the worst is not over in China,” the editor of Strategic Intelligence, wrote in an article about the ongoing crisis in the Chinese stock market. “The market won’t come rallying back, either. That’s not how bubbles work.” (Source: The Daily Reckoning, August 13, 2015.)
“China’s stock market is completely typical of what a crash or bubble bursting looks like,” he wrote. “Bubbles don’t go straight up and collapses don’t go straight down. They’re jagged.”
He linked the latest turmoil in the Chinese stock market to the circumstances prior to all the previous recessions. He explained how stock market bubbles would eventually burst. It may take a couple of years for the stock market to crash. But before the final burst happens, the market will go down after which it will go up a little bit.
“There’s no market left in China. Soon after the crash, close to half the stocks on the Shanghai Composite Index were suspended from trading. The market was open, but if almost half of the stocks are not trading, do you really have a market? I don’t think so.”
“Moreover, the Chinese government also told institutional investors they couldn’t sell stocks for six months. You can only be a buyer, not a seller. The government has also banned short selling and they put together a multibillion dollar rescue fund. This is a façade of a market. What’s left is government manipulation.”
He explained that the country is suffering from a massive debt. Rickards made some suggestions to deal with the bursting bubble upon the Chinese stock market.
“It was an enormous mountain of bad debt from provincial governments and corporations.”
He somehow blamed the Chinese government for selling those bad debts and company stocks with a huge debt to individuals, so as to raise money and deal with credit crisis.
“The government got all of the corporations in China that were going broke to go public. Then, they got the average Chinese citizen to invest.”
With respect to the Chinese economy, he argued that the crises are not only limited to the equity market, but the overall economy is lowing down.
He concludes, “It tells you that the fundamentals are terrible, which is what I’ve been saying all along.”