Lack of confidence in the Chinese economy sends Aussie sharemarket into a panic

As doubts mount over the state of the Chinese economy, the Aussie sharemarket is also in for a tough time, plunging to a 2.5 year low with more than $100 billion in losses for the year, reported.

The upset generally amounts to a lack of confidence in Chinese authorities’ ability to control their economy, including their currency, housing market and domestic spending situation. The Chinese economy has been undergoing a transition from being manufacturing driven and rapidly growing but unsustainable, to one driven by domestic consumption.

Fears over this transition have seen the Aussie sharemarket slip by 7%, in just over a week. S&P/ASX 200 index was at its lowest point since July, 2013, hitting 4880 in the morning, before rising again in the afternoon to close at 4932, just 1.2% down. As a result Australian dollar fell from US70c to US69.28c.

BHP Billiton's share price also suffered, hitting an 11 year low at $15.55 and Rio Tinto fell to $40.50, a seven year low. Banks also saw drops, with ANZ and the National Australia Bank shares falling to a three year low.

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“China’s stock markets are effectively broken,” said Sebastian Heilmann, Director of the Mercator Institute for China Studies (MERICS) in Berlin. “They have always been regarded as something of a casino. But now they have become much too risky, even for speculators.”

"Global markets are still in the grips of China fears, and it is uncertain whether the Chinese government can do enough to reassure global investors," reported IG market analyst Angus Nicholson as saying.

The People’s Bank of China lifted the renminbi for the second day in a row on Monday, which was a welcome change to the market after last week’s 1.5% cut. This helped to stabilise stocks around the region throughout Monday trade, although they were still down. Late in trade, the Shanghai Composite Index was more than 3% lower, while Japan's Nikkei was down by  0.4%.

Heilmann stressed the need for renewed trust in the market if it is to recover. He said, “The Chinese government ultimately has little choice but to make companies and markets subject to a completely new set of rules and regulations. However, since the government wishes to retain political control over the stock market, it’s unlikely that any far-reaching steps of this kind will be taken.”

Still, he sees hope for global markets, particularly in regard to Chinese outbound investment. “Chinese stock markets may remain in a mess for the foreseeable future. But the age of global Chinese capital investment has only begun.”

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