The recent extreme volatility of the Chinese stock market has resulted in the loss of billions of dollars, raising a lot of questions around the world. Today we are going to look at some recent events and factors that have played into the toxic assets bubble.

1. Leveraging of Toxic Assets

The Chinese stock market is heavily dependent on new money entering the system from beginning investors, rather than from value being realised from existing assets. This reliance on new money created a bubble that will inevitably burst at some point.

2. Government Intervention

As the government began to intervene throughout the months of May and June, the Chinese stock market achieved record highs.

3. Suspension of Stock Sales

On July 4th the Chinese government halted the sale of any new stocks in order to try and prevent further losses.

4. Inevitable Downturn

After the initial momentum of state intervention, stock prices began to rapidly deteriorate for the rest of the summer.

5. From Record Highs to Record Lows. 

At the end of July the Shanghai Composite closed trading with a decline of 15%. This marks the worst month in the Chinese stock market since 2009.

6. Yuan Devaluation

On August 10th the People’s Bank of China devalued the Yuan by just shy of 2% to try and halt the recent economic downturn. Unfortunately this led to rapid drops in Beijing share prices.

7. Global Repercussions

This devaluation by the People’s Bank of China quickly led to almost instantaneous repercussions around the world, with massive losses experienced in the United States, Europe, and Australia.

8. Massive Losses for the Dow Jones

On August 21st the Dow Jones Industrial Average fell by a shocking 531 points, marking the worst losses since 2011.

9. Lower and Lower

As if things weren’t bad enough already, August 23rd saw the Shanghai Composite drop 8.5% overnight, leading to losses that the Chinese stock market has not experienced for almost eight years.