China Stock Markets Slump Again

Chinese stock markets crashed again on Tuesday. The benchmark Shanghai Composite Index dropped by 6.2%, on heavy turnover to finish at 3,748.16.

That was the markets’ biggest loss since July 27, when indexes lost over 8% in a single day, prompting the central government to intervene in the market with a raft of support measures.

Traders indicated that Tuesday’s collapse was sparked by fears that the government might cut back its support for the market.

At the end of last week the market regulator said that the China Securities Finance Corp. will remain involved in propping up the market for several years. But it also said that its role will lessen as volatility decreases.

That volatility returned Tuesday, reversing gains made last week when China’s Central Bank surprised investors by devaluing the Chinese Yuan (aka Renminbi) by 4%. Both the crash and the currency devaluation reflect a slowing of the Chinese economy to an official 7%.

The Chinese slowdown, Yuan devaluation and stock gyrations have had a ripple effect, spreading nervousness to other markets and to Chinese companies listed on overseas exchanges. (Last week the U.S.-listed shares of Alibaba and Hong Kong-listed Tencent were both pounded after the two groups reported results that reflected slowing profits and a weakening economy.)

On Tuesday, Hong Kong’s Hang Seng Index was dragged down 1.43% to 23,474.97.

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