Chinese Stock Market Crash in 2015

Chinese stock market crash in 2015

Q1

What were the main symptoms of the crisis in the financial market and in the economy? The crisis has the enormous fall in securities prices at the stock market of China since July 2015 due to a bubble in the market that caused by the strong increase in the flow of capital to the market which was not conditioned neither economic growth nor growth of corporate profits, that was entirely speculative movements on market. On July 8th Shanghai Composite Index fell by 6.4% and the CSI300 index by 6.7%, and for the further 3 weeks, the Chinese stock market has lost 30%. Because of the fall, obviously, the panic ensued, and more than 500 large coorporations on the following day suspended securities trading, because of the risk of default. The fall also affected China's stock market and the world market: the Nikkei 225 fell by 3.1%, iron ore prices fell by nearly 6% (because its main importer is China), and, evidently, securities traded on the Chinese stock market suffered the largest losses(since 1992) of more than $ 3 trillion in value.

Q2

 Which industry of the economy triggered the start of this crisis and in what way? The crisis of 2015 differs from most of the crises in the cause of this crisis: it was not a result of an event in the real economy, but the result of the behavior of agents at the stock market. The crisis was due to the regulator's decision in 2012 to allow carrying out transactions in the stock market with leverage. Obviously, the regulator made it in order to stimulate the stock market, but by 2015 the amount of transactions rose to nearly $ 150 billion. (increased by two and a half in 2014). During 2015, they rose another two times to nearly 370 billion. Dollars (almost 10% of the total capitalization of the stock market). This rapid growth has always indicates inflate the bubble, especially when it comes to transactions with leverage. It heated the interest of investors that the market has gone up for almost 900 days, showing a steady growth, and in the last year Shanghai Composite increased by 150%. June 12, 2015 the Shanghai index reached its maximum value over the past 8 years -. N 5166, at the same time, the market capitalization of the stock market has exceeded $ 10 trillion. Later less than a month and the capitalization index collapsed by 35%.

As it is necessary to take into account the structure of investors in the market: a large part of them has a very low level of education (on private investors account for about 90% of turnover, most of which have not even finished school).

There was also anauthorized (illegal) margin lenders (umbrella trusts) provided easy leverage for bold investors. They let people to borrow far more (up to 5 times their margin) than brokers do (2 times) due to regulation’s restrictions.

Q3

At the moment of crisis of 2015 year China has quite high debt risk, which can be compared with debt risk in USA before crash on the real estate market in 2008 year, when huge players as Lehman Brothers went bankrupt, which caused the crisis of credibility and paralyzed debt market.