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Can China’s Market Turn The Corner?

Sunil Swami, Chief Investment Officer | JUL 07, 2015

China's Stock Market Bubble

The Chinese stock market, which had more than doubled in less than a year, has lost about $2.7 trillion, or roughly a quarter of its value, since June 12.  Much of the lost wealth has hit the Chinese middle-class.  

The Chinese government has taken many significant steps to stabilize the stock market. According to Foreign Policy magazine, “Over the past several weeks, the government has cut interest rates, lowered capital requirements for banks, and released a draft law that would allow state-owned pension funds to invest in the markets. None of those measures staunched the bleeding, and after another brutal week for stocks, the government has used the weekend to announce major moves, some unprecedented. These include a moratorium on new initial public offerings on the Shanghai and Shenzhen exchanges, as well as the establishment of a $19.4 billion fund to buy shares in hopes of propping up demand.”

Ramifications for Investors

The steep decline in the Chinese stock market appears to have had an immediate impact on commodity prices, particularly the price of oil, which has fallen 11 percent this month alone.  We anticipate the steep decline in the market will also hurt consumer demand and begin to have an impact on corporate profits.

We recommend that individual investors stay away from the Chinese stock market, which appears to be an extension of government policy rather than being driven by independent investors.

The content available on this site is provided for informational purposes only, is not intended as an offer or solicitation for the purchase or sale of any financial instruments and should not be relied upon as an investment recommendation. Alerus Financial, N.A. and its affiliate subsidiary companies make no representations or warranties as to the accuracy, completeness or timeliness of the information. The information is not intended to provide legal or tax advice. Individuals should consult a qualified legal or tax advisor for advice specific to their circumstances.

About the Author

Sunil Swami, Chief Investment Officer

Mr. Swami has decades of experience in the investment management and related fields.

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