While many eyes are watching Greece, another large market bleeding. China’s stock market opened on Sunday, July 5, 2015, following an incredible three week plunge, losing $2.36 trillion in market value. Many investors wonder if the losses in Chinese markets will billow outwards towards other countries.
Frederic Neumann of HSBC Holdings in Hong Kong said:
“What happens in China will turn out to be far more consequential than any sting that Greece may deliver over the coming weeks or months.”
With 1.4 billion people and the world’s second largest GDP, financial experts think that China’s problems might have global consequences. “What happens in China will turn out to be far more consequential than any sting that Greece may deliver over the coming weeks or months,” said Frederic Neumann, at HSBC Holdings in Hong Kong. The Shanghai Composite and Shenzhen Composite have both plunged about 30% from their highs over the course of this month. Government officials in Beijing are putting forth measures to ease the financial burden.
The Chinese government has offered a credit line to encourage leverage margin trading. In addition to this effort with other businesses, they’ve shown commitment to buy billions in stock and new IPOs. Officials stated that China’s central bank will give capital to China Securities Finance corp, in trade for the company to offer margin lending. The practice is “high risk” and allows users to purchase stocks with borrowed money.
On July 7, commodities across the board hit a low. Silver dropped under $15 USD, showing a significant drop in the past six months. Crude oil fell 4% and Bitcoin dropped from a high of $275 USD down 5% over the course of Monday evening. When commodities drop this low, the typical reaction is to buy in anticipation of heightening economic hardships.
With China’s markets floundering, the people of the country may turn to safe-haven assets like Bitcoin to keep their wealth safe. In a Goldman Sachs sponsored analysis called “The Future of Finance,” the bank claims that 80% of exchanged Bitcoin is traded for Yuan. The Chinese bitcoin surge comes from lack of confidence in the Chinese economy. The yuan has weakened against the strengthening dollar and capital outflows increased at record rates.
China has had problems in the past with the PBOC warning the country about cryptocurrency. There currently is no explicit ban on buying, selling, or owning bitcoin. The central bank of China has classified the digital currency as a commodity. Without any regulatory commision on the subject, trading continues at full speed.
With countries surrounding Greece buying Bitcoin at vast rates, the question remains: will China follow suit, hedging the cryptocurrency?
Images courtesy of Shutterstock and Bloomberg.com