China’s stock markets are suffering their worst crash since the global financial crisis. If you’re just catching up to it, here’s what you need to know. Last updated: July 13, 2:50 am ET
1) Stocks appear to be pulling back from the brink. The benchmark Shanghai Composite added 2.5% Monday, building on gains made late last week.
2) In another sign that confidence may be rebounding, more than 350 companies resumed trading on Chinese markets on Monday. Last week, over half of all listed firms halted their shares.
3) That doesn’t mean the turmoil is over. Trading remains extremely volatile, and investors are still very nervous.
4) The root cause: Over the past year, investors poured more and more into Chinese stocks, even though economic growth and company profits were weak.
5) Retail investors — think mom and pop, average folks — were the most enthusiastic. A classic bubble developed.
6) The bubble popped on June 12, and since then, the Shanghai Composite index has lost about 20% of its value. The smaller Shenzhen Composite is down around 30% over the same period.
7) China is trying desperately to control the crisis. The government has given money to brokerages to buy stocks — and ordered company executives not to sell their shares. New company listings have been suspended. The central bank has cut interest rates to a record low.
8) Regulators and security officials have launched an investigation into illegal short selling — borrowing stocks so you can sell them in the hope they fall — and rumor mongering. Only approved brokers are allowed to engage in short selling in China.
9) But take a deep breath. Foreigners own just 1.5% of Chinese shares, so your portfolio is unlikely to be affected. Still, economists are worried that stock losses will ripple through China’s economy, and take a bite out of consumer spending. Already, gold and copper prices have been affected.
10) The government’s goal is to minimize damage to the real economy. So far, the country’s banking system is holding up well, and Beijing still has additional policy tools at its disposal.
–CNN’s Agnes Chan and Bex Wright contributed to this report
