July 18, 2015

"While global growth for 2015 is, once again, likely to come in below estimates, the recent volatility in China's equity market is unlikely to exacerbate the slowdown."

NASDAQ Chinese equities have been in freefall lately. Despite a rebound in recent days after numerous well-intentioned (if somewhat counterproductive) government attempts to break the fall, the Shanghai Composite is down roughly 25 percent from its peak. by Russ Koesterich via BlackRock

'It's no wonder, then, that many investors are asking: Does the selloff represent a systemic risk to the global economy? My take: Though China is the world's second largest economy, the volatility in China's stock market is unlikely to have a material impact on either the global or Chinese economy.

'Foreign investment accounts for around 1 percent of Shanghai-listed A-Shares, a market driven by Chinese retail investor sentiment, not fundamentals. Thus, when the A-Shares market moves, it moves sharply and quickly. On the other hand, Hong Kong-listed H-Shares, which more foreigners hold, aren't as skewed to retail and tend to be less volatile. So, while the H-Shares market didn't capture as much upside from China's bull market, it was more insulated on the way down.

'Unlike in the U.S., Chinese companies tend to access capital through bank lending rather than through equity markets, though the Chinese government is trying to encourage greater equity market capitalization via reforms. Indeed, the size of the Chinese stock market relative to China's gross domestic product ( GDP ) is fairly small.'

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