China’s stock markets are suffering from massive volatility and investors are running scared. If you’re just catching up to it, here’s what you need to know. Last updated: August 25, 7:00 am ET (11:00 am GMT).
1) China stepped up its efforts to boost the economy on Tuesday, cutting interest rates and allowing banks to lend more. The announcement came shortly after the benchmark Shanghai Composite index closed down 7.6%. That followed a massive 8.5% tumble on Monday, the worst one-day drop since February 2007.
2) The sharp declines are terrible news for officials in Beijing, who had been trying desperately to support stocks.
3) The root cause of all the turmoil: Over the past year, investors poured more and more into Chinese stocks, even though economic growth and company profits were weak.
4) Retail investors — think mom and pop, average folks — were the most enthusiastic. A classic bubble developed.
5) The bubble popped on June 12, and the Shanghai index lost about a third of its value before rebounding. Losses were even more dramatic on the smaller Shenzhen Composite.
6) China moved aggressively to control the crisis. The government gave money to brokerages to buy stocks — and ordered company executives not to sell their shares. New company listings were suspended. The central bank cut interest rates to a record low.
China stock market keeps crashing, loses all 2015 gains
August 25, 2015 by Leave a Comment