China’s Market Still Down as U.S. Rebounds

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Over the last several weeks, global stock markets have lost trillions in market value, effectively erasing all gains made for this year, and renewing fears of a deepening collapse. While U.S. stocks rebound somewhat on Tuesday, China’s stock market continued its downward path without an end in sight.

U.S. Recovery

In the U.S., the Dow Jones industrial average went up around 2% or 250 points and stayed level a day after chaotic trading sent the index of 30 blue-chip stocks tumbling down towards an 18 month low. Since then, some losses from the worst two day fall since the financial crisis were also regained by the S&P 500 and the NASDAQ, as calm prevailed.

This represents an encouraging start after several days of raucous trading in which a number of large national and multi-national companies lost billions in market value in the midst of a global selling craze.

No State Intervention for China

While the U.S. and other international markets have managed to regain some stability, China’s seems to be in a free-fall, with country’s main share index down for a fourth day in a row. At Tuesday’s open, the Shanghai market was down another 6 percent from the previous day’s disaster, setting a new eight month low. While it recovered slightly during the day, that trend soon reversed and it ended up down 7.6 percent.

However, unlike the previous falls when Chinese authorities unleashed a series of measures in an attempt to stop the slide, among them establishing a $400 billion fund to buy stocks, giving a directive to state-owned companies to purchase shares, and banning large shareholders from selling shares, it seems that this time they are keeping out of it.

The People’s Bank of China has cut its one year benchmark lending and deposit rates by a quarter of a percentage point and has moved to increase liquidity by reducing banks minimum reserve requirements by half a percentage point. With no extra measures taken, it is clear that the Chinese authorities have either decided that they cannot stop a global slide in equity markets, or now realize state intervention has become too expensive.

What this means for the Chinese economy is yet to be seen, but if the state has stopped intervening it could help to avoid future excessive volatility.

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