Stock Market Stabilizes after Roller Coaster Ride
After a up and down roller coaster ride since July 2014, the stock market has finally stabilized and the risks are released to some extent. To respond to queries, the China Securities Regulatory Commission stated that the market transactions are normal with liquidity relatively abundant and innate stability is improving.
The benchmark Shanghai Composite Index surged by 154 percent since July 2014 as high as 5,178 points in June 12, 2015 but didn’t plunged more than 38 percent. Gains on stock market are too rapid and large forming stock market bubbles, giving subsequent plunges and adjustments are inevitable. And then panic selling came with freefall and high leverage stock financing that speed up the plunge after fueling the previous surge, which resulted in liquidity risks and a system financial risk. But government efforts to soother the market assisted in stemming potential systemic risks. Presently market risks and bubbles were released to some extent.
As the stock market gradually stabilize which was shown by reasonable stock prices and lowered leverage along with abundant market liquidity. Price to earnings ratio for the benchmark Shanghai Composite Index dropped to 25 in mid June to 15.6. the ratio for smaller Shenzhen Component Index went down also 70.1 to 37.3 and from 134.5 down to 63.6 in the CHiNext Index, and China’s NASDAQ style of growth enterprises. The risk associated with high leverage stock financing were released which curb some illegal financing activities and stock financing coming from brokerages were at normal levels.