Tuesday, 4 August 2015

China's stock market rebounds but at risk of century's "greatest equity market correction"

China's stock market rebounded on Tuesday from a three-week low. The Shanghai Composite Index rose 3.7 percent after falling 4.4 percent over the previous three trading days.

Earlier on Tuesday, several Chinese brokerages temporarily stopped short selling by clients after the Shanghai and Shenzhen exchanges introduced a measure requiring investors who borrow shares to wait one day to repay the loans.

Despite the rebound today and the official measures taken so far to stop the market fall, Scott Minerd of Guggenheim Partners said in a commentary last week that the current Chinese equity market correction could turn into a stock market plunge similar to what happened in the United States in 1929.

According to Minerd, "the Chinese stock market is still grossly overvalued" while margin debt remains "sky-high".

He warned that "at this point investors should take note that the world’s second-largest economy could...find itself at the epicenter of this century’s greatest equity market correction".

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