China unleashes stock market chaos

Apparently 2016 has not started with good foot, at least in the money world. Stock market seems to be on the verge of chaos thanks to the Asian giant and its retirement of the automatic closing mechanism of the stock.  For the second time this week, it already happened on Monday, the stock market regulator had to use the immediate suspension mechanism of the negotiations to avoid an imbalance of major proportions. When China took this decision, the Shanghai stock market registered a drop of 7, 32%, while the Shenzhen stock market registered a higher drop of 8, 35%, and all this happened in less than half an hour of contributions.

What unleashed this sales rage was the fact that the Chinese Central Bank decided to apply a shortage of 0, 5% to the daily reference rate of the Yuan opposite the Dollar, being the biggest devaluation since the month of August. This turn out to be enough to make the investors decided to sell away their stocks. The analysts explained that the mechanism created by the Chinese authorities to save something of their stock market it is not giving nice results. Instead of calming the investors they started to sell more stocks, in order to not be trapped in the market automatic shutdown.

Later in the afternoon, before the European Parcheesi closed its doors, the yellow giant came over his steps and announced that the automatic shutdown of the operations in case of a very fast drop of the stock´s price would not be used again. The argument the Chinese Securities Commission used to justify this was that the negative effects of the mechanism surpass the positive effects.

This information helped to calm down and reduce the lost in Europe. Ibex 35, at its worst times, had a drop over 3% and in the final fall it stabilized in less than the half. This time its drop was 1, 5% what allowed to keep itself above 9.000 points.

There is something that it cannot be changed by changed by now. The limits that were imposed in sales to the investors cannot be removed. This means that the owners of at least 5% of any company will not be able of selling more than 1% in three months time and on top of that, they are obligated to make their plans public, at least 15 days before the apply them.

It hard to understand what is really going on with Chinese economy, but to make the story short, their economy it is not the same that used to be, the consumption it is not the same, the companies have many debts and they do not sell as they used to sell and that they have difficulties to pay their loans and that they fear Pekin will go further in the Yuan devaluation plan in order to win competition. The capital is not longer safe on Chinese soil.

Another big problem besides the Chinese stock market is the drop of oil prices. The Brent, the oil used as reference in the European contribution, is paid at less than $35, something that happened back in 2004. Besides the problems between Saudi Arabia and Iran seem to not make the path easier to make a difference in the OPEC and that different choices are taken in order to stop the downfall of oil prices.

On top of all this mechanism problems and stock market stability, there is this. We all know the huge responsibility a journalist has, the responsibility of informing the people about the daily events that turn out to be important and relevant for their everyday life. Journalists help to shape people´s reality and perspective of the world. Like people cannot be aware of everything that happens in the world and they cannot travel around the world and be in all places at the same time, journalists and newspapers have the huge task of giving this information to the society in a compressed and objective way, to help them plan their routine and drawn out conclusions.

So when a journalist uses this power to twist information according to their interests, usually does not end well. This was what happened when the Chinese journalist Wang Xiaolu decided to twist some fact about the already problematic Chinese stock market and unleashed hell. He confessed having caused panic and chaos at the Chinese stock market and have caused huge losses to the country and even though it happened in mid 2015, it shows the power of the word on a matter that has not being solve yet.

Wang Xiaolu, a Caijing magazine journalist, was detained after the recent stock market storm because of the spreading of fake information about stocks and market, according to the Xinhua official agency. Wang had affirmed that the sector regulators were studying the possibility of a market way out of the public funds.

The perspective of an early withdrawal was likely to cause great doubt among operators, just about the time Beijing was trying to stabilized the stock market by buying huge amounts of stocks by public organisms. The China Securities Regulatory Commission (CSRC) had denied what the journalist had written, saying that information was an irresponsible statement. He confessed after his mistake that he had intentionally manipulated the information in order to add more drama to the situation, like if it needed more. He said later that he was sorry about spreading fake information that had affected the stock market in a very sensible time, problem that has not being solved yet, according to what we mentioned at the beginning of the article.

This current chaos is likely to be this journalist´s fault. This chaos is now getting more attention because earlier this week, only 29 minutes passed until the emergency mechanism was activated and all financial operations in China were suspended. The current worry is about the Chinese government. The investors are worry about how skilled or incompetent the authorities can be to manage the stock market that passed from a boom to a collapse more times that in the last 12 years, more than the rest of the big markets around the world in the last decade. So, all the eyes are on the authorities and people are waiting for the release of a statement that says what to do and which the possible solutions to this major problem are. For now, the Yuan has hanged in there and no devaluations are expected for now. Actually, the economist expect a economical expansion of 6, 5% for this year, at least, this are the predictions for now.

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