Sunday, July 19, 2015

The 2015 Chinese Stock Market Crash: A Mainland Chinese Taste of Reaganomics?

The given the devastating effects to Mainland Chinese mom and pop investors, is the 2015 Chinese Stock Market Crash a signal that “Reaganomics” has finally reached The People’s Republic of China?

By: Ringo Bones 

To those old enough to experience first hand the devastating effects of Reaganomics first hand during the mid 1980s to mere mom and pop stock market investors could see the 2015 Chinese Stock Market Crash as a “déjà vu” to the excesses of mid 1980s era Reaganomics disguised as ”free market economics”. After all two-thirds of those Mainland Chinese mom and pop stock market investors don’t even have a high-school diploma and therefore didn’t receive an informed consent when it comes to the gambling-like risks involved in investing your money on the stock market. 

The 2015 Chinese Stock Market Crash began with the popping of the stock market bubble on June 12, 2015. A third of the value of the “A-Shares” on the Shanghai Stock Exchange was lost within one month. In the year leading up to the crash, enthusiastic individual investors continued inflating the stock market bubble through investment in stocks, exceeding the rate of economic growth and profits of the companies they were investing in. These individual investors – most of them mom and pop stock market investors – faced margin calls on their stocks and many were forced to sell off shares in droves, precipitating the crash. Around the 8th and 9th of July 2015, the Shanghai Stock Market had fallen 30-percent  over three weeks as 1,400 companies - or more than half listed  - filed for a trading halt in an attempt to prevent further losses. Values of Chinese Stock Markets continued to drop despite efforts by the government to reduce the fall. At the time, tenured economists criticized the Beijing Government’s excessive micromanagement of the problem instead of just letting the market correct itself like in a fiscal environment of a true free market economy. 

The economists at Money magazine estimated that the potential negative impact on the United States Stock Market may come about when Mainland Chinese investors begin to seek out relatively stable U.S. investments in treasuries, stocks and cash and further strengthen an already strong US dollar, thereby raising the prices on U.S. goods and diminishing export profits. Even though listed IPOs on the Shanghai Stock Exchange sell-off had been recently curtailed by the China Securities Regulatory Commission (CSRC), tenured economists argue that impact on the US economy could be limited because only 5 to 10 percent of Mainland Chinese households have stocks compared to 50-percent of households in the United States.   

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