Chinese Stockmarket

As if Grexit weren't enough to worry about in terms of the world economy...

Some Asian markets on Monday declined less than anticipated in response to Sunday's Greek No vote. It may be because the Chinese market was being propped up. Per USAToday:

    On Saturday, China’s 21 largest brokerage firms said they would spend a whopping 120 billion yuan (about $19.3 billion) to try to stabilize the market, according to Chinese state media. The firms will actually buy stock funds themselves.

    The goal is to show regular mom and pop investors that the big players still think buying stocks is a good idea. It’s a similar strategy to companies buying back their stock when they think it’s undervalued.

The Economist had this to say about the situation:

    The crash has underlined the burgeoning role of debt in Chinese share-trading. Goldman Sachs reckons outstanding margin financing, at 2.2 trillion yuan ($355 billion) earlier this week, was the equivalent of 12% of the value of all freely traded shares on the market, or 3.5% of China’s GDP. Both “are easily the highest in the history of global equity markets,” its analysts noted. With Chinese shadow banks and peer-to-peer lenders also offering cash to investors, the amount of hidden leverage in the market is estimated to be as much as 50% higher. That debt helped fuel the initial rally. It is now adding to the pain, as leveraged investors rush to sell their holdings to cover their debts.