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Top 4 reasons for Chinese stock market Slowdown

Chinese MeltdownThe role of China in the worldwide economic scenario cannot be denied. The stable economic health around the globe is strongly knitted with a steady progressive Chinese economy. China is unarguably the second largest economy of the world and the second largest importer of goods and commercial services. However, the financial sector in China is witnessing a stumble trend because of the tumbling stock market scenario. Although the trend had been continuing for long since the end of 2014, but cracks became visible in mid June 2015. It was the time when the continued surge resulted in knocking out 30% of the Chinese shares. In lieu of the stock market conditions, the regulators of the Chinese securities anticipated a panic wave among the investors, majority of which comprises of individuals who were under severe debt crunch. These individual investors borrowed heavily in order to buy shares in the stock market.
What is the reason of this fall in Chinese stock market is a million dollar question that is  humongously discussed by all financial analysts, experts and research scholars till date. Owing to the magnanimity of the Chinese economy, there can be several reasons that add up to this fall. Keeping in view of their importance, the writer has discussed the following certain core issues that are directly responsible for a plunging Chinese stock market.
1. Enacting Repurchase Agreements
The main reason for this slump is attributed to the repurchase agreement passed by the Chinese securities clearing house. According to the agreement, the investors are prohibited to use low grade corporate debt as collateral for short term loans. The decision was an attempt to liberate the over burned Chinese debt financial system. However, the move was perceived differently from the investors. Sensing it a financial risk, the panicked investors started to sell liquid assets to raise cash, evoking a sell off response in the bond market, which later  involute stock and currency markets.

About Emaad Qureshi