Impact of China's stock market crash on rest of the world

By Nicole Miskelly | 25 August 2015

Chinese stocks fell by 8.5 per cent yesterday, on what is being dubbed “Black Monday” and is the worst fall since the sharp drops faced by US and European markets in 2007.

The fall, which many believe is down to China’s slowing growth, impacted the index of the UK’s biggest 100 companies, the FTSE 100, which fell by 4.6 per cent, and brings the total the FTSE 100 has fallen by to 15 per cent since a peak in April 2015.

Overnight both Europe and the US also saw dramatic falls including, Wall Street’s Dow Jones which fell by 6 per cent, and major markets in Germany were down by 4.96 per cent and fell by 5.5 per cent in France, but are expected to show signs of recovery when they open today.

“We are in the middle of a full-blown growth scare, with China at the epicentre,” said Analysts at JP Morgan, the BBC reports.

According to the BBC, following many years of rapid growth, China is facing a slower pace which investors are worried will affect many firms and countries that rely on the high demand of goods and services from the world’s second largest economy and importer.

Reports suggest that Chinese shares had been experiencing a year-long rally which was fuelled by investors borrowing money to buy shares which ended in June, and since Monday, China has faced further falls in the market with their main stock exchange, the Shanghai Composite falling 7.6 per cent and the Shanghai Composite dropping 7.8 per cent.

Those hit hardest by the crash are Chinese people who have borrowed money to buy shares and companies which rely on shares to raise capital. However, many people believe that the state of Chinese economy is the bigger issue and the Chinese government have several options to stimulate the economy such as cutting interest rates, encourage the yuan to fall further or relax rules on bank lending, all of which would have an affect the stock markets.

Reports today suggest that things seem to be looking up slightly for the UK and after making its worst losses since 2003, the FTSE 100 rose by 2 per cent this morning but experts have warned that it may have a long way to go before it hits the record breaking 7,000 mark it hit earlier this year.

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