Financial Crisis :

Case of an
emerging
economy

 Worlds

faster growing economy avg.

growth rate 10% p.a. over 30 years.

Global

manufacturing hub

Largest

exporter of goods in the world.

Fastest

growing consumer market.

 Asian

infrastructure Investment bank.

Negatives

Artificial

currency devaluation

IP

theft ,protectionism, law

enforcement.

Recent

slowdown primarily in sectors

such as steel, cement & auto.

 Rising

its per capita income from

megre 299 $ in 1980s to 13000 $ in
2015 ,GDP becomes worlds largest in
terms of purchasing power basis
becomes 16 trillion $.

What

is happening suddenly to chinese

markets? (slowing of economy, Greek
crisis & slowing of American markets
Fed Tapering Etc)

 Records

the second biggest fall in

the history of Shanghai Composite
on 27th july,2015,8.4%.

The

size of fall in terms of number

value is 2.3 Trillion in single day i.e
roughly equals to the entire GDP of
Brazil.

 BY

8-9 July 2015, the Shanghai stock

market had fallen 30 % over three
weeks as 1,400 companies, or more
than half listed, filed for a trading halt
in an attempt to prevent further losses.

Values

of Chinese stock markets

continued to drop despite efforts by the
govt. to reduce the fall.

 Investors

faced margin calls on their

stocks & many were forced to sell off
shares in droves , precipitating the
cash.

PE

ratio is 70:1 where as in most of

developed economies average
stands at 18:1.

 Weak

growth numbers add to the

woes.
Growth

of companies not correlated

with the rising stock prices, markets
rise by 50% in three quarters ,
Shanghai composite peaks at 5277
pts in mid June 2015.

 Sell

the holdings to pay off the

margins making the market more
weaker.

After

three stable weeks the

Shanghai index fell again on 27th July
by 8.5% , making the largest fall
since 2007.

 Global

companies that relied on the

Chinese market suffered from the
cash.

Second-quarter

sales of American
fast food company, Yum! Brands, in
china dropped 10 percent , resulting
in revenue going under the
companys estimate.

 South

African ore mining company ,

Kumba Iron Ore, eliminated its
dividends on 21 July as the 61
percent loss of profit in the first of
the year was announced.

Effect

on institution and businesses.

 The

sharp decline in share prices

implies that the cost of capital for
Chinese businesses has risen, which
could exert a depressing effect of BFI
spending.

As

the investment moves to more

secure avenues Gold prices are up
by 8 % in a month.

 Devaluation

of Yuan makes Dollar

strong & thereby helping Indian
Economy as it is primarily on Exports
of Goods & Services.

 Black

Monday hit India hard. Really hard.

slowdown in the Chinese economy isnt

a terrible event when you consider that
Modi is trying to attract manufacturers
with his Make in India concept.

While

investors pull out funds parked in

China and other emerging economies ,
India still is an attractive market.

 On

24 August, Shanghai main share

index lost 8.49% of its value. As a
result, billions of pounds were lost on
international stock markets with some
international commentators labelling
the day Black Monday.
There were similar losses over7% on
25th August causing some
commentators to call it Black
Tuesday.

 The

Govt. stopped IPOs.

The

Govt. provided cash to brokers

to buy shares.

The

CSRC announces relaxation of

rules on margin trading before
market open.

 CSRC

imposed a six month ban on

stockholders owning more than 5
percent of a companys stock ,
resulting in a 6 percent rise in stock
markets

Regulators

limited short selling

under threat of arrest.

 Devaluation
Bringing
Further,

of Yuan by 5 %.

Policies.

around 1,300 total firms,

representing 45 percent of the stock
market , suspended the trading of
stocks starting on 8th July.

 As

of 30th August , the Chinese

government arrested 197 people.

 Most

of Chinese citizens rely on their

children for retirement, not on stock
investing.

Chinese

firms dont raise the capital via the

stock markets.

The

lack of accounting transparency of

Chinese firms makes it pointless for any
serious investor to invest in Chinese
stocks.

 Very

weak correlation between the

Chinese stock markets and the
Chinese economy.

Shanghai

SE market cap ~ USD 6

trillion now down to about USD 3.6
trillion.

 Unbalanced

and Unsustainable

growth.
Chinas

debt equal to 280% of GDP

which is a very big number and
given the market conditions its the
big reason to worry.

 The

recent slow down has seen a

halt in flow of investments & money,
thereby leaving the infra projects in
half built state, hurting the already
poor economies more.

Its

primary focus was to be a

Production centre of world is not
helping it to sustain growth levels.

 Its

not bad for all, as the confidence

in chinas economy is going down it
is believed that India is to benefit
the most out of it , but the question
is will our govt. be able to convert it
in to opportunity?

THANK
YOU