Thursday, January 7, 2016

China's Market Crash

Last Thursday, stocks in Shanghai crashed 7% leading to a market shutdown for 30 minutes. China's stock markets instituted a "circuit breaker" that was designed to stop crashes like what just occurred from happening after it happened last summer. The "circuit breaker" mechanism pause the stock market for 15 minutes if it changed more than 5% in a day and a full day if it changed more than 7%.  However, these "circuit breakers" had the opposite effect. As a result of the crash, US stocks and European stocks are also crashing. The Dow and similar European counter parts are all down at least 5%, the lowest in decades. China's international economy is also starting to fall apart with the decline in the currency valuation.

Some of the reasons why the crash happened are the devaluation of the currency and the "circuit breaker" mechanisms both of which were direct actions of the Chinese government and central bank. It's clear that China's economy affects the rest of the world as it is a major exchange point with the US and Europe.

1. Was the Chinese government and Central bank at fault for this crash because of the circuit breaker mechanism and devaluation of the yuan?
2. Will China's markets be able to recover to their previous status?
3. Will major companies in other countries like the US and the European nations avoid dependencies in Chinese stocks going forward?

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