How China Lost an Entire Spain in 17 Days

By EconMatters

Concerned about a tumbling equity market, PBOC moved to cut both interest rates and the reserve requirement ratio for banks over the weekend.  However, increasingly wary of a market bubble in China, investors still sent Shanghai Composite spiraling down another 3.3% on Monday after the dramatic 7.4% plunge last Friday despite the support from the central bank.

Chaos on Three Continents

Investors are also unnerve by the latest development of Greece just days before a total default and Grexit out of EU, and the news that Puerto Rico could become another Greece of the U.S. facing a financial crisis and cannot pay back its $70 billion in municipal debt.

Read: China's $370 Billion Margin Call

VIX Spike

MarketWatch reported that VIX spiked 33% to above 18, the highest since February, implying that investors are very nervous about the chaos going around.

Beijing Targets Soft Landing?

If you think U.S. stocks are lofty trading at an average of 16 times last year's earnings, the average Chinese stock is now trading at 30 times earnings.

Analysts at HSBC think the China's central bank was trying to engineer a "soft landing" for stocks. But this could be a difficult balancing act trying to shore up investors' confidence while keeping a lid on the speculative fever among Chinese retailer investors (Remember those Chinese housewives who bought up 300 tons of gold and made Goldman Sachs swallow their gold selling recommendation?)

Read: Is China Under The Skyscraper Curse?

$1.3 trillion, an Entire Spain, in 17 Days

The Shanghai Composite has fallen 21.5% since its June 12 peak wiping out ~ $1.3 trillion in market cap. To put this in perspective, Quartz pointed out that the ~ $1.3 trillion loss in market cap, in 17 days, is close to the combined market capitalization of Spain’s four stock exchanges, and it’s not even counting losses in Shenzhen, China’s other major bourse.

Read: China Resets The Currency Markets

Size Does Matter 

Greece has been the center of financial market attention for the past few months.  With a record $370 billion in margin trades, the Chinese stock market is looking even more ominous.

Only time will tell if Beijing's able to turn the situation (i.e. slowing economy with a bubbling equity market) around.  But if the world's biggest trading nation suddenly has a crisis of some sort, it would be a catastrophe of a different scale.  Size does matter when it comes to financial collapse, and China could do far worse damage than any Grexit or PIIGS debt default.

Chart Source: Quartz

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Comments

[fremannx]

Spain's debt-ridden economy is still collasping. They went into full-blown deflation last Sept.

http://www.globaldeflationnews.com/spain-enters-the-deflation-zone-europ...

China will suffer greatly from the global economic collapse, but their economy is a net-creditor and thus will not suffer nearly as much as the U.S. (the largest debtor nation in history) and the European Union.

http://www.globaldeflationnews.com/

[Hope Copy]

Bloody clasic 'kill the local investor'..  It is a Communist country... Put those people back in their place and nothing wrong in taking foriegn money.

[NoBillsOfCredit]

This shows the crazy market system we have. All prices on the margin. The assumption that when one share traded on a market for price x that all other shares are worth the same amount of stupid in the max.

[Salzburg1756]

Spain lost a Spain when it joined the Euro zone in 1986.

[Max Steel]

stock markets never signifies growth of a nation's economy . Moreover stock markets rise and fall everyday its quite normal . Why youre cribbing about it ? Stock is not an easy game people do  end up loosing a lot of money . US stock markets always remain in green showing upward trends but that doesnt mean usa economy is booming and its strong . Its the reverse .

[Citxmech]

Central planning never works either.

[KnuckleDragger-X]

According to the central planners it does and they are the genius elites. Don't believe me? Just ask'em.......

[Hope Copy]

Bull, or now bear..  It is working like a charm.  They will be working for nothing just like before, but now with cell phones that trak their every move (thank-you US of Asses; for the paper gold ponzi and all those T-bills and Bonds that still can be brought on to bear).