LATEST: Wednesday morning continuing downturn in the Asian bourses. Shanghai fell nearly 7 percent, while Hong Kong Stock Exchange went down 4.74 percent shortly after opening, according to NTB.
overpriced stocks, brokerage in barbershops and state-run media that encourages the average Chinese to invest all their savings in the stock exchange. There are only some of the factors that helped to inflate the bubble in the Chinese economy.
Ole André Kjennerud DNB Markets explains what happens in China:
1. How much Chinese stocks fell in recent weeks?
Since mid-June, the Shanghai Stock Exchange fell by over 30 percent. The impairment is at 2.360 billion dollars, or 19.000 billion. This corresponds to about ten times as much as Greece’s GDP, type NTB. When the top was reached on June 12, share prices had more than doubled.
– The bubble has burst. We have seen an almost continuous fall in nearly four weeks in a row and may continue, says Kjennerud.
Bloomberg compares the drop in China with stock-market crash in the US in 1929.
2 . Why have so many Chinese people invested their savings in stocks?
90 million Chinese have now invested in the stock market, according to Reuters. Ole André Kjennerud says the statistics for the number of new stock accounts ceased to be updated in May.
– When it was opened around 5.5 million accounts just in one week. It is beyond high, says the economist.
Trading was more readily available for ordinary Chinese last year. Meanwhile, interest rates have been cut, and it’s easier to take out loans to buy shares.
– Former Chinese have been very reluctant to go into the stock market. Especially after the last bubble burst in 2007. But last year there was a change in attitudes, think Kjennerud.
Now, the average Chinese stood in line to buy shares. It should have gone so far that hairdressers were adopted as brokerages.
– The Chinese normally have tended to invest in housing. But the housing market has gone very bad over the past year, and we’ve got a shift over to people saving in funds and shares, said Kjennerud.
3. Has not anyone warned this fall?
– Yes, the fall had to come, says Kjennerud.
Analysts worldwide have warned for months against the overpricing of Chinese stocks. Kjennerud said it was possible to see that the shares were sharply overvalued in December.
Many compare the situation in China with the dotcom bubble in the early 2000s. Also this time it’s technology and network shares that have contributed most to blow up the balloon.
– On the way up, it was particularly technology shares pulled the most. They were by far the most expensive, says Kjennerud.
4. What makes the Chinese authorities?
The state-controlled media have been remarkably positive for the explosive growth in China’s stock market.
– It is very special. The media have gone out and urged hvermansen to buy shares as the new way to save money, says Kjennerud.
He thinks it could be a strategy from the government’s side. Many Chinese companies have large debts and a strong need for more equity, so the debt divided between several owners.
Now try the Chinese government to stabilize the troubled market. They have among others announced that they will investigate whether the market is manipulated. Brokerages have been told to stop selling shares when the index falls below 4,500 points.
Several companies have also put a break for trading in its shares, hoping to calm down the nervous mood.
5. Where does all the money come from?
In addition to investing their savings, many Chinese made loans to the exchange trading. Most of the loans come from Chinese banks. In addition, brokerages borrow money from a government financing fund.
– We see that loans that have gone to finance stocks are at an extremely high level. It is now up to about 3.5 percent of GDP. If one compares it with other countries and earlier bubbles, there is an almost unprecedented situation, says Kjennerud.
6. China’s era of super growth now over?
China has had very strong economic growth since the 1990s. Since 1999, it has been as high as 13 percent a year, and never below 7 percent, according to figures from the World Bank. Share prices do not affect value added directly, but can be a sign that things are starting to slow up.
According Kjennerud it is uncertain what effect this month’s fall will get. But many believe the decline will continue for a while.
– In the first three months, we saw that growth in China was lifted by almost one percentage point due to strong trade finance and equities, says Kjennerud.
This means that economic growth was artificially high. Analysts therefore believe this year’s growth could end in less than six percent, which is very low for China to be.
7. How this will be felt in the rest of the world?
Many people are currently very concerned about the effects it will have on Greece should leave the eurozone. But in a world context, a fall in growth in China have far greater consequences.
– Greece’s a tiny part of the global economy. China is the world’s second largest, and contributes most of all to global growth, says Kjennerud.
China imports also part of luxury goods from other countries. German carmakers Audi and Mercedes are already beginning to notice it on the turnover.
– Gjennomsnittsskineseren has entered the market with their savings. If he loses everything, it will give a pretty big kink in the Chinese consumer, think Kjennerud.
In addition, serve many of the indebted Chinese companies less money than before.
– Very many Companies in China have extremely much debt. Especially in property, mining operations and industrial growth is weaker. Here there must be more bankruptcies, believe Kjennerud.
– And what about Norway?
– The direct link between Norwegian and Chinese markets are very weak. But a weaker car use in China can make oil prices vulnerable to further falls. And so, this may also affect Norway indirectly responding Kjennerud.
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