When the year 2016 began, one of the first major news items to hit the airwaves was the sudden decline that was noticed in the Chinese stock markets. Stock market circuit breakers were put in place to prevent the Chinese stock market from declining more than 7% in a single trading day; within the first two weeks of the year, these circuit breakers were triggered several times. This stock market decline rapidly spread to other global markets, creating bearish stock markets worldwide.
In the summer of 2015, the Chinese stock market experienced a major stock market crash.
Within three weeks, the Chinese stock markets went down by approximately 30%.
All the major Chinese stock market indexes nose-dived, and yet it took several weeks of selling in the Chinese stock markets before the selloff spread to other global markets. So what was different about this particular 2016 selloff?
Why the panic? The answer is relatively simple, investors were dumping their Chinese shares because there was evidence of the Chinese economy was contracting, and that it’s Government was weakening its currency through its severe interest rate cuts. That is an investor’s answer, the other answer is the fact t…