Can $500 billion restore normalcy in Chinese stock market?
China's stock market capitalization melts by $3-trillion as equities crash 30% in less than a month while State-owned banks step in with buying support. Technical charts indicate further fall and economy slowdown becomes a major concern.
As the Asian stocks recover before Fed meeting, global investors shrug off turmoil in Chinese market viewing the swings as common to China and other small and emerging markets.
After suffering the country's second worst one-day crash of 8.5% since February 2007, and subsequent marginal recovery, investors and market analysts are chary of real rebound in the market.
The Chinese government has intervened in the market with $500-billion support plan to buy shares to arrest further downfall and restore normalcy in the market. The market still looks jittery as analysts are skeptical about the measures of the Chinese government in the backdrop of economy slowdown. The chances are less for real recovery with the aid of the government intervention as it'll only deliver short term breather for the market.
Technical charts indicate further drop in the market. However, the market crash in the world's second largest economy is unlikely to hurt global investors, observe some analysts.
Chinese government is confident of bringing the stock market back on track and it initiated buying support to stabilize the market.
Zhang Xiaojun, a spokesperson at China's security regulator the CSRC said, "A government-controlled stock-buying agency will continue to buy stocks to stabilize the market."
The security regulator has also initiated a probe into the market fall if there's any malicious short selling taking place. Beijing's official news agency Xinhua further stated that if any individual is found to be involved in huge stock sell off then government would punish the culprit.
On Monday, Shanghai Composite Index tumbled 8.5% at 3725.56 points and Shenzhen index plummeted 7.6% to close at 12493.05 points. After the crash on Monday, Chinese stocks pared early losses on Tuesday following the buying support emerged from the state-owned banks.
However, Shanghai Composite was closed the day with 1.7% at 3,663 recovering from the early losses. The index fell more than 5% during the session before recovering from buying support from the banks.
The market crash in the Chinese stock market that began mid June this year shaved off $3 trillion market capitalization so far. The market was down 30% in the less than a month. The Chinese market rose to over 4,100 points rallying consecutively in three weeks before tanking on Monday.
Considering the technical charts, the Chinese market could fall further as the Shanghai Composite index might not break over 4,000-4,100 points resistance zone. The next target could be 3,400 support level that formed in January 2015 highs. If the index breaks this support level, then it could fall further to 3,100 level.
Asian stocks recovered in early trading on Wednesday following the rebound in US and European stocks ahead of the Federal Reserve's meeting on monetary policy.Traders and analysts are looking forward to the outcome of the Fed's meeting as it enables policy makers assess the strength of economic growth amid drop in commodity prices and turmoil in the Chinese market.
On the other side, the global investors seem to be not serious about the stock market crash in the world's second largest economy. They consider that China shares are a small portion of the world stock holdings.
The Shanghai Composite Index grew from 2,000 level in July 2014 to peak of 5,200 in June 2015 and then dropped to 3,600 mark on 28 July 2015.
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