After China’s ‘Black Monday’, which sent ripple effects across all global markets, Chinese stocks continued to sink on Tuesday fueling the fears of worldwide investors that the recent crash may be just the tip of the iceberg called global recession.
After a devastating 8.49 percent loss this Monday, Shanghai Composite Index sank 7 percent below 3,000 points on Tuesday, making the collapse the worst since 2007.
Unlike in the U.S., 80 percent of the Chinese equity market traders are small private investors who act on the market on their own rather than being tied to fund managers.
The market’s first signs of volatility emerged in June, when losses forced about 20 million investors to exit market to prevent more losses.
Now, Chinese economists put the blame on the People’s Bank of China (PBC) for the Monday’s crash. They said that shareholders lost trust in the central bank because it failed to trim down the banks’ reserve requirement ratio as promised.
But when commodity sales began to plummet last month, Wall Street advisers pointed the blame stick at the Federal Reserve and unrealistic expectations for an interest rate hike by the end of the year. Moreover, because commodities are traded in the U.S. currency, which is relatively strong at the moment, developing countries would import fewer raw materials due to inflated prices.
But when global stock markets began to tremble last week, international analysts blamed Beijing for the recent currency devaluation in an effort to boost exports. A similar idea was expressed by the GOP front runner in the presidential race Donald Trump.
Mr. Trump tweeted Monday that China would “bring us down,” after they had taken our jobs and money. But some analysts believe that Trump doesn’t see the big picture. These analysts believe that global stock markets are plunging into chaos, currencies and raw material prices are collapsing because the world never got out of the recession and things may just have started to aggravate.
That may explain why global stock markets were already sinking a couple of weeks before China’s central bank decided to devalue its yuan and why commodity prices are at a 16-year record low.
Analysts explain that things are logical. Whenever Europe and the U.S. import less Chinese products, China has to slow down production. And the less goods China produces the fewer commodities it purchases from its trade partners. But those trade partners need to sell their raw materials to thrive. And thus China’s decline triggers some first world nations’ decline and global unrest.
In July, China’s exports to Europe fell 12.3 percent, those to Japan sank 13 percent, while exports to the U.S. slid 1.3 percent. Economists now see gold as the safest commodity to invest your money in.
Image Source: Wikipedia
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