The Chinese Stock Market Crash

Barely worth discussing at a poker table … up until, that is, you begin thinking about the indirect effect of China. None of thought that a super-power like China, would have 2 stock market crashes totalling a ridiculous….3.3 trillion dollars.

My entire life i never would have thought China of all stock markets would have a huge crater in their financial markets, until now.

Nobody brought up China’s economy…until, that is, you start considering the indirect impact of China to US and Canadian markets and our dollar. How the Chinese market has been shrinking for weeks now.

Up till now, China has been launching a plan where top brokerages would spend nearly 20 billion dollars to bolster the market.

Which leaves one big question…Can the US economy crash?

Let’s reel in the facts on this post…

# 1) The Chinese Consumer Impact

Not just is China the 2nd greatest economy on the planet, its families have actually lastly begun to have a significant influence on the international stage. Now, businesses in the Standard & Poor’s 500 index of U.S. stocks create more than 40 % of their sales overseas, with Asia Pacific (led by China) accounting for about 8 % of their revenue.

For some American businesses however, the numbers are in fact much, much greater. Now, around 40 businesses in the S&P 500 consistently break out their earnings particularly from China, according to Bloomberg.

The difficulty is, as influential as Chinese customers are, they’ve simply been hit with not one, but 2 big market crashes in quick fire succession. BOOM and BOOM!

The very first remained in the nation’s super heated housing market, which makes up around 15 % of the Chinese economy. For almost a year now, housing costs in China’s big cities have actually fallen. This has actually put serious pressure on Chinese real estate consumers, because around 2 thirds of the normal Chinese household’s wealth is tied to their houses.

When the real estate market began sliding, Chinese investors began and put 20 billion+ of their money into the stock exchange, which is why the Shanghai composite index skyrocketed in the 12 months through mid June as shown below:

That is, till the Chinese market began selling, and investors lost around a 3rd of their profits in equities in less than one month’s time:

How big was this sell off?, given the size of the Chinese market? stock market analysts say the sell off has erased $3.3 trillion worth of wealth. To put this in perspective, the 2 stock market crashes have amounted to 3.3 trillion dollars, 14 times worse than Greece.

It raises the prices on goods that U.S. exporters offer abroad, crimping their earnings and sales and profits.

# 2) The Effect on the Dollar for US and Canada

If China’s market remains to plunge, expect more and more investors – mostly the Chinese themselves– to look for haven in U.S. or Canada-denominated assets such as Treasuries, stocks, and simply plain cash. The Chinese may start buying up homes in droves in Vancouver as an alternative cash shelter.

Even prior to this ‘ripple effect’ in the dollar, U.S. businesses have actually been having problems recently at turning a profit, thanks to the currently strong dollar. As the dollar has actually increased in basic in the previous year approximately, S&P 500 earnings development has actually slowed from a speed of around 10 % in 2013 to less than 1 % this year.

And if that’s the case, it will certainly be that much more difficult for U.S. businesses to improve their earnings and profits. And eventually, that’s problem for U.S. stocks.

The crisis in China– combined with mega crisis in Greece– is currently being felt by U.S. investors through the dollar. Considering that the Shanghai market began crashing in mid June, the US dollar has actually gotten 3 % in value versus worldwide currencies, as investors look for shelter in the fairly security of the US economy.

Do you think the US economy is safe? Where would you put your money if the US markets crashed?