THE financial experts of this country are preoccupied with the euro crises triggered by the debt default of Greece, but most of them have failed to notice the elephant in the room, or in the neighbourhood — the crash of China’s stock market.

Many economists have likened this scenario to that of 1929 Black Tuesday, yet some have opposed this viewpoint because of China’s huge economy. Since June 12, the Shanghai Composite has lost an upsetting 32pc.

According to Bespoke Investment Group, China’s stock markets have now lost $3.25 trillion. The bears are growling even louder on the smaller Shenzhen Composite, down roughly 40pc in the same period. There are 90million stock market investors in China, which is more than the total number of people in China’s Communist Party (87.7million); therefore, this has created a serious problem for Chinese policymakers.

There has been the slowest economic growth this year. There is media hype regarding the positive investment outlook of the stock exchange. Trading with risky strategies/practices (high margin trading), significant cuts in interest rates and offering the green light to pension funds for investing in shares, and the popularity of margin trading — the practice of buying stocks with borrowed money — are the main factors behind this situation.

On the other hand, to address this huge issue, the Chinese government has suspended the pipelined IPOs worth four trillion yuan in order to divert the expected money in the troubled stock market.

The Chinese stock market crash has no domino effect on Pakistan’s stock exchange, as China’s is an isolated stock market. It has no impact on the world market, and there is no direct or significant correlation between the stock exchanges of both the countries.

However, our policymakers must look into it because 17pc of Pakistan’s total trade is associated with China, and this stock market crisis might influence our business.

Aadil Zahoor

Karachi

Published in Dawn, August 3rd, 2015

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