The Shanghai Composite index lost 8.5 percent.Another index of the largest listed companies inShanghai and Shenzhen, in southern China, fell by 8.6percent.
Experts say Monday’s price drop came from investorstrying to secure profits following recent Chinesegovernment efforts to support prices. In early July,China’s central bank made billions of dollars available tobrokerages. The money was for the purchase of sharesin companies to prevent their prices from falling too far. At that time, more than 1,400 companies requested thattrading in their stocks be stopped to avoid furtherlosses. That number is now smaller.
 |
|
An investor stands near an electronic board showing stock information in a brokerage house in Anhui, China July 27, 2015. China stocks plunged more than 8 percent, their biggest one-day drop in more than eight years. (REUTERS/Stringer) |
Other experts say investors reacted to reports that theInternational Monetary Fund wanted China to reduce its market intervention.Also, Chinese industrial companies reported earnings that were worse thanexpected and pork prices rose.
Raymond Yeung is a China economist at the Australia and New ZealandBanking Group. He says the main reason for the sharp drop is that Chinesestock markets are not done de-leveraging. De-leveraging means to reducethe amount of money borrowed to pay for investments.
“Because of the high leverage exposure of the Chinese markets, anything thattriggers a decline in such a short time will see some negative spiral effects insuch highly leveraged markets,” Yeung says.
Many investors borrowed money to buy stocks as China’s mainland stockmarkets rose by about 150 percent over the past year. Borrowing in this wayis known as margin lending. But as markets have fallen, many investorscould struggle to pay back the loans.
Raymond Yeung says he expects Chinese stock regulators to continuerestricting such practices.
Chinahas taken a number of measures to try to make sure the markets donot fall. These include requiring anyone with five percent of shares in acompany to hold them for six months.
Lu Suiqi is an associate professor of economics at Peking University. He saysregulators will not be able to keep the markets from falling, and they should nottry to do so. Mr. Lu says Chinese stocks remain too costly.
“The government’s rescue measures could curb the slides in a short term, but are powerless in reversing the long-term trend,” he says.
I’m Jim Tedder.
Joyce Huang reported this story for VOA. Additional material came from Reuters and other news services. Mario Ritter wrote it for VOA LearningEnglish. Caty Weaver was the editor.
______________________________________________________________
Words in This Story
listed – adj. to be among the companies that are traded on a stock exchange
de-leverage– v. (financial term) to reduce the amount of debt owed
margin lending– n. lending for investment purposes; lending part of themoney owed in order to make a stock transaction
regulators– n. government officials who have power to make and enforcerules
curb– v. to limit; to reduce or discourage
trend– n. the general direction in which something is going
