China’s Hang Seng Down 7%, Nikkei Off Over 3%

By Douglas A. McIntyre Updated Jul 8, 6:39AM EDT · Published Jul 8, 4:30AM EDT

Follow 24/7 Wall St. on Google

This post may contain links from our sponsors and affiliates, and Flywheel Publishing may receive compensation for actions taken through them.

Whatever the Chinese government thought it was doing to put a foundation under stock prices has not worked. The Hong Kong Hang Seng fell over 7% before recovering to a 6% drop to 23,500. The Shanghai Composite sold off 6% to 3,500. Perhaps in sympathy, Japan’s Nikkei dropped 3% to 19,739. The panic is on.

The People’s Republic has done everything possible to hold prices up. It has prevented the trading of 20% of publicly traded company shares. The increase in company shares that cannot trade has hit 40% over night. It has instructed institutional investors to plow money into buying. It has increased margin limits. It has instructed brokerage houses to buy as well.

The reasons for the sell-off are mysterious. One theory is that individual investors entered the market quickly over the past several months to take advantage of the increase but have hit margin limits. Another is that Chinese companies will post poor earnings as the economy struggled.

According to Reuters:

The most compelling theory why the stock bubble burst: Chinese economic growth is the weakest it’s been since 2009. Share prices got way ahead of growth and company profits, which are actually lower than a year ago.

“China’s stock market had become detached from the reality of China’s own economy, and appallingly overvalued,” Patrick Chovanec, managing director at Silvercrest Asset Management, said on Twitter. “This is gravity taking effect.”

So far, the panic has not spread to markets in Europe and the United States. For the time being, there is little reason to see why it would. However, over the years, global markets have become more intertwined. Panic does not have to have a foundation in reality.

ALSO READ: Will Pollution Kill China’s Growth?

About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.