China’s stocks and currency have lost value this year, reviving woeful memories of the country’s last market rout in 2015. This time may be worse, The Wall Street Journal reports.
The Shanghai stock market has slumped 17 percent, making it the world’s worst performing major market this year. The yuan has slumped 3.6% against the dollar since the start of June, as investors dump the currency and China’s central bank tries to devalue the currency as a trade conflict with the U.S. heats up.
The Shanghai Composite Index has never since regained its mid-2015 high, before the People’s Bank of China shocked markets with an abrupt 2 percent devaluation of the yuan. The 2015 market boom and bust was driven by retail investors who—initially with government encouragement—borrowed heavily to bet on stocks, then rushed to sell when the market cooled.
This year, Beijing’s campaign against high debt levels and a trade war with the U.S. are causing worry, with investors responding to signs of deeper problems for China’s economy. The U.S. slapped tariffs on $34 billion of Chinese goods on Friday, and China has pledged to retaliate in “equal scale and equal strength.”
Institutional investors who typically take a longer-term view of markets appear to be driving the stock selloff this time around.
“The latest selloff was definitely led by institutions, because in the past when the market fell, blue chips often bucked the trend. This time around, blue chips are falling, too, and it has been like a stampede,” said Amy Lin, a senior analyst at brokerage Capital Securities, told the Journal. “The economy was in better shape in 2015, and the stock market had rallied for a long time before the crash. There was also no trade war at that time.”
Economic statistics for May showed a slowdown in areas including investment and retail sales. The same month, Beijing’s campaign against shadow-banking activity more than halved the country’s overall credit supply.
“Nobody, including myself and many of my friends, wants to invest in anything. There’s no confidence, and we are in no mood,” said Wu Yunfeng, a retail investor from Shanghai who said he hasn’t invested in stocks since last year.
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