Forget your plans for a quiet, relaxing summer. The stock markets of the world¡¯s second largest economy are tumbling; and when Chinese equities turn bearish, it can be brutal.
This is unlikely to be a localized event. The big fear is a rerun of China¡¯s stock market rout of summer 2015, which saw a 45% selloff. There were further major selloffs in early 2016 and 2018. The knock-on effect for emerging markets then saw average credit spreads rise by a quarter and the MSCI emerging markets equity ETF fall by over 25% in the second half of 2015 into early 2016. China¡¯s latest stumble could lead to skinned knees around the world.
Beijing¡¯s crackdown over the weekend on for-profit school tutoring is just one part of a much wider reshape of the tech economy in China. And it is more likely just a beginning, not the end of the process. It¡¯s also becoming a major inflection point for global investors to evaluate Chinese and China-linked assets. As one recent analysis put it: ¡°China doesn¡¯t care how much money you lose.¡± Goldman Sachs Group Inc. and JPMorgan Chase & Co. will not be alone in turning cautious on Chinese stocks.
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