China Tremors Rattle Stocks Throughout Asia Unit

Macroeconomics

ChinaTremors Rattle Stocks Throughout Asia

Unit

The Chinese market has been on a fee fall recently. This fall coupledwith a sluggish economy and a devalued Yuan are thought to the majordriving forces that have led to the stock market decline in Chinawhich has had a ripple effect in other markets globally. This declinecomes on the backdrop of a growing influence of China in globaltrade. The country has for a long time been a favorite FDIdestination buoyed by reforms in state owned corporations. However,there are fears that this level of investor optimism is not longerthere.

Other economies that are involved in heavy trade with China have alsobeen affected mostly through stock market decline. Hong Kong’s HangSeng Index fell 20.6% in the quarter, while Japan’s Nikkei StockAverage shed 14%, Australia’s S&ampP/ASX 200 dropped 8% andIndia’s S&ampP BSE Sensex dropped by 5.9% also in the thirdquarter (Deng 2015). While the decline in China’s stock market hasnot largely affected the overall economy to a great extent, there arefears that this may occur with time. When this happens, then theeconomies of other countries besides the stock market will also beaffected.

Countries that trade heavily with China are likely to be the mostaffected. For instance, Korea, through its global firms such as LGand Samsung, which have made large investments in the country, ismost likely to be affected. This has prompted the country to takeprecautionary measures to cushion her economy against the threat ofChina’s decline. The government has created a specialist groupheaded by First Vice Minister Joo Hyeong-hwan and tasked withpredicting change in the Chinese economy and establishingcountermeasures (Herh, 2015). The group has already declared that thedecline in the Chinese stock market is as a result of a very rapidgrowth and hence the market is just readjusting with the economystill registering impressive economic growth of 6-7% (ibid). However,this may not be the case with authorities in China alreadyinvestigating any form of irregularities in the market that may havetriggered the crash (Wong, Cough &amp Stevenson 2015).

Japan is also a significant trade partner to China and is thus tiedto the stock market decline. This is evident in the aforementioneddecline in the country’s stock market by 14%. Further, the devaluedYuan has also led to the strengthening of the Yen against the dollar.A stronger Yen leads to a decline in profits of Japanese firms suchas Toyota, Sony and Mitsubishi operating in the global market(McCurry 2015).

Far away in Australia, the ripples of the Chinese stock market crashhave been well received. As a country whose economy is largely basedon mining and resources, the decline in the Chinese economy meansthat the market for Australian minerals have shrunk. This is becauseChina is a net importer of oil and resources. Major stocks in theAustralian market have already recorded significant drops. Theyinclude BHP Billiton, Rio Tinto Fortescue Metals, Woodside Petroleum,Commonwealth Bank, Westpac, National Australia Bank fell, Glencore,and ANZ. This shows that in Australia, not just firms in the miningindustry are affected but those in other sectors such as financialservices.

From the brief discussion above it is clear that the Chinese stockmarket crash has had huge effect on the global economy. Although itis still too early to predict the medium to long term effects of thiscrash, it is obvious that investors are withdrawing their money fromChina in favor of safer markets. The safer markets in this case arethose with significantly little economic ties with China at themoment. The sudden devaluation of the Yuan seems to be the trigger tothis stock market crash which in so many ways reminds investors ofthe housing market crash in the US and its larger effect on the USand the global economy.

References

Deng C. (30 Sept.2015). China Tremors Rattle Stocks Throughout Asia. Wall StreetJournal.

Retrieved from,http://www.wsj.com/articles/china-tremors-rattle-stocks-throughout-asia-1443633681

Herh, M. (26 Aug2015). Specialist opinion: `Chinese stock market crash has limitedimpact

on Korea’s realeconomy` Retrieved from

http://www.businesskorea.co.kr/news/money/11829-specialist-opinion-chinese-stock-market-crash-has-limited-impact-korea%E2%80%99s-real

Janda, M. (29 Sept.2015). Share market sheds $56 billion as commodities tank Glencorecrash

shakes resources. Retrieved fromhttp://www.abc.net.au/news/2015-09-29/australian-shares-tumble-on-steep-overseas-declines/6812472

McCurry J. 29 sep2015). Asian markets fall as fears deepen over China slowdown.Retrieved

fromhttp://www.theguardian.com/business/2015/sep/29/asian-markets-fall-as-new-fears-raised-over-chinas-economy

Wong, E.Cough, N &ampStevenson, A. Sept. 9 2015). China’s Response to Stock PlungeRattles

Traders.http://www.nytimes.com/2015/09/10/world/asia/in-china-a-forceful-crackdown-in-response-to-stock-market-crisis.html