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 (
) is fairly small.'