China’s stock plunged more than 7 percent on Thursday forcing shut down of trading further for the day after only 29 minutes of opening. This is the second time in a week the market has tumbled down to such a low with concerns about the depreciating currency and health of the economy.
The effect of Chinese market was also seen in other Asian markets. Sensex in India dropped 450 points.
In less than four days the Chinese yuan has gone down 1.5 percent against US dollar. Earlier in September a similar depreciation surprised global investors.
Beijing’s move to devalue the currency is sending ominous message to investors and the other stimulus efforts of the government is not working.
Meanwhile, it is also true the currency devaluation is the only last-ditch effort for the Chinese government to boost exports. It is also feared the country may not be able to maintain the growth targets if the efforts are being made in the economy transition from heavy manufacturing to services.
The individual domestic investors are losing confidence in the market and looking to get their money overseas or to stash savings in cash. They don’t have any reason to park their investments in Chinese stocks to struggle further for uphill and getting weaker earnings.
The only reason to buy Chinese stocks, since summer 2015, is the belief the government would push the market up.
Frankly the policy makers in the country are facing tougher challenges in bringing stability in the economy. If they are unable to do, the money flow from FDI too may dry up, making the economical situation further worst.