China: Financial system risks brewing - AmpGFX

According to Greg Gibbs, Analyst at Amplifying Global FX Capital, the deep falls in the Chinese equity market this year may reflect fundamental concerns over the state of the Chinese financial system and the fears for its export sector driven by US trade policy. 

Key Quotes

“China has led a fall in global equities in the last month.”

“There has been much reporting of forced sales of pledged shares in the Chinese equity market in recent weeks; ie. shares pledged by Chinese companies as collateral for loans.  This appears to be a symptom of the troubled state of the Chinese financial system.  The fact that large numbers of Chinese companies have resorted to such a high-risk form of short-term financing suggests they have struggled to access finance elsewhere.”

“The Chinese authorities have pulled out all stops to stabilise the market in recent days.  This may prevent a financial crisis In China and help underpin global financial markets.  However, underlying stress in the Chinese financial system and economy are likely to remain a problem for some time, threatening a resumption of a fall in Asian equities.”