Does the Chinese Stock Meltdown Hurt You?

Does the Chinese Stock
Meltdown Hurt You?
By www.ProfitableInvestingTips.com

http://profitableinvestingtips.com/stock-investing/does-the-chinese-stock-meltdown-hurt-you
Does the Chinese stock
meltdown hurt you since you
probably do not own stocks in the
Shanghai or Hong Kong stock
market?

Maybe you own Chinese stocks
listed on the New York Stock
Exchange or NASDAQ.

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Does the Chinese stock
meltdown hurt you then?

Here are a few thoughts about
the direct and indirect effects on
non-Chinese investors of the
15% dive that Chinese stocks
have taken in the first days of
2016.

First of has the meltdown of the
Chinese market spilled over into
stocks that you can buy via
American Depository Receipts or
other means in the USA?

How Is Alibaba Doing?

When Alibaba had its initial public
offering we wrote about whether
to invest in Alibaba or not and
asked where will Alibaba be in
a year?

Alibaba opened at $93 on the first
day and climbed to $114 in three
months.

Then the stock slid down to $60
by the middle of 2015 when
stocks in China peaked.

While the Chinese stock market
was melting down in the second
half of 2015 Alibaba was
recovering and finished the year
at just over $80 a share.

However, the first days of 2016
have not been kind to BABA.

As shown on Google Finance the
stock has gapped down on
successive days and trades at
$70 a share.

While Alibaba has not performed
as many investors would have
liked it has not experienced the
meltdown seen by many Chinese
companies that are traded only in
China.

Why have stocks on the
Shanghai stock exchange melted
down so badly?

Over Priced and Badly
Managed

The plunging Chinese market is
overpriced.

Many mom and pop Chinese
investors bought real estate until
the real estate bubble threatened
to burst.

They pulled their money out of
property and invested in stocks
driving prices excessively high.

The stock market bubble burst in
mid-2015 taking a third of market
value with it.

Another 15 percent went away in
the first days of this year and
regulators are having a hard time
managing the decline.

The Washington Post writes
about deepening worries about
Beijing’s hand on the crisis.

China’s stock slide showed no
signs of easing Monday,
steamrolling over attempts by
Beijing regulators to stem a dive
that has battered markets around
the world.

The Shanghai Composite
dropped more than 5 percent,
dragging down Asian and
European markets and extending
last week’s losses.

The market has now lost 15
percent of its value in just six
days of trading, renewing
questions about the state of
China’s economy – and the
Communist Party’s capacity to
manage it.

Shanghai closed down 5.3
percent, with the smaller
Shenzhen Composite tumbling
6.21 percent.

Hong Kong’s Hang Seng index
fell 2.6 to 19,927.67, closing
below the 20,000 threshold for
the first time since June 2013.

However the Chinese stock
markets are not closely linked to
the economy in China unlike in
North America, Europe or Japan.

The issue for Western investors
not is a Chinese stock meltdown
will hurt you but rather the world
wide ripple effects of the
substantial slowdown of the
Chinese economy.

Developing Economies
Feed Off a Growing
China and Now What?

For years many nations in the
developing world prospered as
they sold commodities such as
oil, coal, iron ore and various
food stuffs to an economically
growing China.

However, China’s growth was
based on borrowing money to
build a bigger industrial base in
order to export more and more
the rest of the world.

When the Great Recession it
China reduced orders for raw
materials from much of the
developing word and nations like
Brazil fell into recessions worse
than the Great Depression.

In turn these nations now import
fewer finished products from
China, Europe and North
America.

How the slowing Chinese
economy hurts you is by slowing
the global economy.

Currency Exchange Rates

China’s yuan is overpriced and
the Chinese are going to loosen
their peg to the USA dollar and let
it slide toward what the market
determines.

This will make Chinese products
cheaper and more competitive
and may have already set off
a Forex race to the
bottom about which we wrote on
our sister site, Forex Conspiracy
Report.

Wealthy Chinese are already
pulling money out of China,
converting yuan to other
currencies and buying property in
the West.

The Chinese stock market
meltdown is a symptom of a
larger ailment in China whose
cure is going to be and time and
perhaps social upheaval in the
land of Managed Capitalism.

Does the Chinese Stock Meltdown Hurt You?

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Does the Chinese Stock Meltdown Hurt You?