China’s Stock Market Plunges

The New York Times
Date: June 26, 2015
By David Barboza

SHANGHAI — Share prices in China plunged on Friday in one of the sharpest sell-offs in years, accelerating a downturn this past week in what has been, for much of this year, the world’s best-performing stock market.

China’s two major market indexes fell in tandem. The Shanghai composite fell 7.4 percent on Friday. The Shenzhen composite fell even more, dropping 7.9 percent. Share prices in Hong Kong, which is regulated separately, also weakened, dropping 1.8 percent.

Analysts had been warning for months about the risks of a stock market bubble in China, where giddy investors have driven up stock prices by purchasing shares on margin, or with money borrowed from brokers.

China’s market has been an anomaly. Even though the broader Chinese economy has been relatively weak, which is typically bad for corporate profits, share prices of many Chinese-listed companies have skyrocketed during the past year. Many traded at record valuations, often 80, 90 or 100 times their projected earnings.

The high valuations have been a boon for listed companies and their major shareholders. The market boom has also helped encourage a wave of Chinese companies that had listed in the United States to arrange stock buyouts and delist with the intention of eventually relisting in China, where stock valuations are much higher.     [FULL  STORY]

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