China Contagion: Hong Kong Growth Stock Index Plunges -13%

The relentless selloff in Chinese markets sent Asian stocks to 18-month lows on Wednesday, with the MSCI’s broadest index of Asia-Pacific shares down 2.7 percent. Losses in excess of 5 percent were seen in China, Hong Kong and Taiwan, while the Japanese Nikkei was down 3.2 percent to a seven-week low.

 

Wednesday’s Chinese losses followed the “Black Tuesday” stock crash that saw the Shanghai B Share Index suffer a 9.1 percent loss, while the Shenzhen Exchange plunged 5.8%. The spectacular losses came despite the Communist Party leadership organizing a $200 billion government-financed stock “buying group” composed of 115 state-owned financial institutions.

 

As Breitbart News reported, Communist Party leaders President Xi Jinping and Premier Li Keqiang shaped the nation’s “Silk Road” reforms around a late 2013 pledge to let market forces play a “decisive role” in the economy by having equity markets provide a bigger share of corporate financing. As Bloomberg News noted: “State media cheerleading for the stock market played to patriotic sentiment, arguing that the rally was an endorsement of (President) Xi’s economic policies.” But with stock prices crashing and social media full of viral panic, Xi and Li’s credibility is at risk, and their failure to stop the crash could result in the Communist Party overthrowing the leadership as scapegoats.

 

That may be why the People’s Bank of China announced that it took urgent measures to provide sufficient liquidity to stabilize the stock market by “injecting unlimited liquidity into the China Securities Finance Co Ltd” (CSF).

 

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