The Chinese government is going all out to stop the plunge of its stock market, pushing brokerages to contribute 120 billion yuan ($19.3 billion) to a fund to buoy equities among other moves.
But author Gordon Chang is skeptical of the plan. "The announced measures look like they will only slow — and not prevent — further destruction of value," he writes on Forbes.com
The Shanghai Stock Exchange Composite Index has dropped 28 percent since June 12, sliding 1.3 percent Tuesday.
So what will limit the government's ability to turn things around?
- "First, there was no reason for stocks to start their bull run last summer other than the central government’s announced desire to push valuations higher," Chang says. The Shanghai Index has returned 85 percent over the last year. "The bubble was certainly not supported by either a robust economy or surging corporate profits," Chang notes.
- "Second, the announced amount of rescue money looks woefully insufficient," he explains. The $19.3 billion brokerage fund amounts to only about 15 percent of recent daily trading volume.
Meanwhile, Canada Financial Post columnist Joe Chidley says China's stock drop, combined with Greece's woes and falling oil prices, spells trouble for investors. Greece has begun defaulting on its debt and may have to leave the eurozone. Oil prices have plummeted 14 percent since June 23.
"Add it all up, and we’re looking at a turning of events for the worse," Chidley writes
. "The Greeks, fittingly enough, had a word for it: catastrophe."
As for Greece, fear lingers that the nation's woes will spread to other debt-laden eurozone countries such as Spain and Italy. In the oil market, the issue is supply. The United States keeps cranking out crude, and more may come from Iran if it reaches a nuclear agreement with the United States.
And when it comes to Chinese stocks, there is concern of a meltdown. "Now the bubble has burst, as it inevitably had to, and for about as much reason (or lack thereof) as it had for inflating in the first place," Chidley says.
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