Why China Stock Market is crashing

Posted on Leave a commentPosted in Economics, Stock Exchange

Since last 3 weeks, China Stock Market is crashing. Thats known Fact.

Why?

china-margin-of-debt_1024.0

The Chart indicates %age of Borrowed Money to the Investment into Stock Market as compared to free floating stock. This is called Margin Debt. Borrowed money is fuelling the China Stock Market Bull rally…Untill 2010, People could not invest the borrowed money into Stock Exchange, but after relaxation, as chart indicates, it is climbing uphill.

Why Every one is worried.

50% of Stocks are under circuit breaker.

Because, once unwinding happens, price starts dropping, lender ask for more security or start liquidating the security, resulting into downward spiral. As you know, it’s a cascading effect. The China Stock Market is very huge. In fact, in last 3 weeks, the value equal to 13 Greece Economy has been wiped off.

It’s like contagion.

Courtesy : Vox.com