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Turning the financial health pages of yesterday’s, one would realise that there had been many stock market bubbles come and go. But the ones that left behind dark shadows are still living afresh in our memories. From the Asian Stock market crash of 1990s to the subprime fiasco that shocked the world, especially the US back in 2008; global markets have been hammered, beaten and hammered again; leading governments to borrow debts in order to give buoyancy to their failing economies, while investors were left with their investments turning into ashes. Having said this, there has been a recent global event very similar to the 2008 market crash that has caught a lot of attention. Only this time it was China replicated what the US did in 2008. While many investors were still recovering from the 2008 recession, the falling of Shanghai Markets by 8.5% on July 27th has once again instigated panic and labelling yet another international market rout.

Explained In A Nutshell

The Start

It all started in June when China saw some of it’s over enthusiastic investors borrow funds for the purpose of investing in the stock market. (Remember majority of these investors that we are talking about were individuals and not institutions.)  So these excessive investments inflated the markets as they outpowered the economic growth rate and also the profits of the companies they had been invested in. Naturally, this fuelled panic as companies started suffering losses and so efforts were put to force-sell stocks to curtail companies from wiping out further losses. But by then Shanghai Index had already lost about 30% compelling the Chinese government to intervene and put things back on track.

The Role Chinese Government Played

In a desperate attempt to hold the stock market from crashing, the Chinese government brought in some measures. Some of which included cutting the interest rates giving more breathing space for borrowing, halting Initial Public offerings (IPOs) and barring promoters or any investor owning stock above 5% from selling for 6 months. It provided cash to brokers in order to encourage them to purchase more stocks. While these measures did prove effective , it couldn’t do much to resist the ultimate crash. But then the government did something else too.It devalued the chinese Yuan not once, but twice. The effect of this was felt in the international markets and on this particular day of 24th August, Monday the week had a battering start. People around the world named it “Black Monday”

The Effect
As if the struggling European markets weren’t enough to slow the pace down, plunging of the Chinese market to a historic low was the last terrible thing that could have possibly happened. Well known global companies that relied on china crashed tremendously. In fact countries who relied on China for their imports had to taste the bitterness as well. Market gurus would like to call the aftermath of the crash as a “corrective” phase, but let’s hope that the year ahead doesn’t alarms us with yet another crash.

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