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Four reasons why Chinese stocks have fallen over 8%

By Religare

Something isn't right with the Shanghai stock market and the signs are there for all to see. Despite every effort that the Chinese government had put in, the stocks plunged 8.48 per cent on Monday, biggest since February 2007, a clear indication that the China's economy is decelerating.

So what is making the investors in the Land of the Dragon nervous? Why are all the efforts to support the markets by the government failing? Lets take a look at some of the reasons that might be responsible.


• Drop in industrial profits putting pressure on the economy: China saw its industrial profits drop in the month of June, making it difficult for the already struggling economy to recover. The the National Bureau of Statistics (NBS) reported that profit in China's industrial companies fell 0.3 per cent in June from the previous year.

• Reports of government removing support funds: There are worries that the Chinese authorities may pull back on the measures to prop up the markets and curb its purchases of blue-chip stocks. Reports have suggested that the authorities may want to test whether the market has recovered its resilience.

• Poor liquidity: Turnover on the mainland-listed market has fallen from over 2 trillion yuan before the market slump to about 1.2 trillion yuan in recent days.

• Poor PMI: The preliminary reading of Caixin's Purchasing Managers' Index (PMI came in at 48.2 for July, the weakest reading since 48.1 in April 2014. A a reading below that represents contraction.

Story first published: Monday, July 27, 2015, 23:00 [IST]
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