Monday, August 24, 2015

Worst Day in 8 Years for Stocks

It was the worst day since 2007 for stocks in China, with the Shanghai Composite down 9 percent at several points during the day, closing down 8.5 percent. It is impossible for stocks to fall much faster than this. Trading rules in China stop trading for stocks that fall 10 percent in one day. Combined with the declines of the last two months, the Chinese stock market has retreated to the level of the start of 2015.

The selloff is far from over. Stocks in China are still overvalued by roughly 50 percent and may need to retreat to the levels of August 2014, when the latest bubble began, to find a sustainable level. That could take months of choppy declines, or it could happen faster if a consensus emerges.

Social media suggests that there is still a degree of disbelief among stock investors. Reaction on Weibo summarized for CNN suggests that the stock market is like a cheating boyfriend who “disappoints and hurts you.” There are calls for prosecution of “manipulators” who are imagined to be causing stock prices to decline. Some writers complain about regulators’ statements blaming the declines on events on foreign stock markets. None of this is the measure of a market that will find a bottom quickly.

The selloff today extended to oil and global stock markets, down about 4 to 5 percent.

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