Relationship Between Chinese Stock Market And Macro Economy

Stock markets generally reflect the economic conditions of an economy, Alfaro, Chanda, Kalemli-Ozcan, & Sayek (2004). If an economy is growing then output will be increasing and most firms should be experiencing increased profitability. This higher profit makes the company shares more attractive – because they can give bigger dividends to shareholders. If the economy is forecast to enter into a recession, then stock markets will generally fall. This is because a recession means lower profits, less dividends and even the prospect of firms going bankrupt, which would be bad news for shareholders.

China is proving to be one the fastest growing, major economies in the world, perhaps even the most dynamic. Since the country

China was one of the fastest growing economies after 2000. China’s GDP grew at an average of 10% from more than last decade with fast paced manufacturing and industrialization. Shanghai stock exchange, biggest stock market in Chinese economy, kept on growing at fast pace, which recovered quickly through global meltdown of 2007 and after 2014, it grew enormously, due to which it almost doubled its value within a year. Increasing trend of Margin trading and overpriced stock prices gave rise to a volatile bubble which finally burst in June 2015, which led this country to face the biggest stock market crash of their history. We will try to analyze whole event, all the factors which contributed to this Government supported fiasco and its impact on future of Chinese economy as well as on the rest of the global economy.

There is an abundant of literature can be found on the study of causal relationship between the macroeconomic variables and the stock prices with various scope and time period. Also majority of the study results depicted the association between the macro indicators and the stock market movement either in the forward or in the backward or also a bidirectional relationship. Some of the previous research works on this topic have been discussed and it is found that those conclusions supported the present study.

With the economic development of China rapidly increasing, China has gradually attracted the attention from the worldwide publicity, state media reports, and it has become one of the important players in the international sphere. In general, economic development and growth has become one of the most significant factors for China’s successes. Historically, there are three main periods since the founding of China, which are after the establishment of the country, the period of the opening policy, and the contemporary period. Each historical period has significant influences for China’s development. Hence, I will illustrate how China’s economics developed so fast from the past to modern, and how its economics affected Chinese society and its own market.

This article will consider the global issues that has led to stock market volatility in the past year. It will look at how these issues developed, its effect on the equity and global economy and how they interrelate with each other. It considers how investors can benefit by selecting and allocating assets alternative to equity in their investment portfolio. This would help counteract the effects of the

China is considered the second largest economy in the world. During the past two years, this country has faced a number of both positive and

The analysis of this paper will derive the validity of the Fama and French (FF) model and the efficiency of the Capital Asset Pricing Model (CAPM). The comparison of the Fama and French Model and CAPM (Sharpe, 1964 & Lintner, 1965) uses real time data of stock market to practise its efficacy. The implication of the function in realistic conditions would justify the utility of the CAPM theory. The theory suggests that the expected return demanded by investors on a risky asset depends on the risk-free rate of interest, the expected return on the market portfolio, the variance of the return on the market portfolio, and

The United States and China are the world's largest investor and utmost contributor to global financial and economic growth by wide margins. The competence of its financial system in allotting capital to asset will be significant to sustain this growth. This paper examines the comparative relations of US and Chinese stock market from the 1980s to the global financial crisis of 2008 and the relative impact of Chinese markets on the US stock markets as China opens up to investors globally. China's stock market since the last financial reform has become as educational about forthcoming corporate profits as in the US. Furthermore, although it is a closed market meaning not everyone can have the opportunity to invest in Chinese markets, Chinese

By virtue of an accelerated dynamic economy, China’s stock market has witnessed rapid growth from a global perspective over last decades, along with massive IPO activities emerged with a huge amount of fund raised. The reasons why the Chinese initial public offering (IPO) market and its abnormal characteristics have drawn more interests from investors can be attributed to multiple aspects.

As known, ensuring price stability was the ultimate aim of the monetary policy by targeting an inflation rate or interest rate. Before the global financial crisis, most central banks took an expansionary approach to asset price and credit booms. As a result, monetary policy was to react to changes in asset prices and credit aggregates only to the extent that they affected inflation (Bernanke and Gertler, 2000). After the crisis, policy makers recognized the dangers associated with financial imbalances so that central banks tending to follow the flexibility. In many financial markets, considering about financial imbalances like foreign-exchange rate, interest rate, unemployment rate and fast credit growth becomes a more significant role on monetary policy. Meanwhile, there is no doubt that monetary policy has a direct effect on financial markets like stock market, bond market, mortgage market and so on. The aim of this article is to focus on the relationship between monetary policy and stock market movements. There is evidence that the stock returns is affected by the money supply rate. The link between the two parts is particular interest and the stock prices are sensitive to economic conditions. Therefore, the stock prices’ trend is able to become a reflect of the monetary policy’s influences on stock market. In total, one of the ways that monetary policy uses to stabilize the financial market is to adjust interest rate, which affects firm’s equity and the stock liquidity.

Financial risks appear more threatening on the Chinese economy. Needless to say that a financial crisis would have serious consequences for the Chinese economy and mainly the market for luxury products especially as the banking sector is the only way to finance the economy in the absence of actually active financial markets (socialist economy requires). There are two major factors of uncertainty: the overheating of the Chinese economy and the problem of bad debts. These two phenomena are related, since it is the increase of credit (+30% on 2003), which partly financed growth. However, the domestic national debt is already very high (190 % of GDP) as the amount of bad debts (estimated 104% and 139 % of GDP) thus raising the risk of collapse of the entire system if the

China, arguably the most robust economy in the world, shocked everyone when it announced that its key stock market had crashed. When the facts came out it became clear that this was much more than just a blip on the radar, what it actually represented was a huge plunge. This plunge sent many traders into panic mode, as many key Chinese equities were trading at levels that many thought were once implausible. Making matters worse was the fact that the crash occurred at a time when China was looking to promote the strength of Chinese stocks. There is no other way to look at the situation; the crash of Chinese stocks resembles a global issue and one that has the potential to spread to other important global markets.

In countries with well developed financial markets like the US, firms use the equity and debt markets to raise capital for their operations, instead of relying on just financial intermediaries such as banks. China’s financial markets, however, are relatively undeveloped, with equities and debt instruments combined accounting for <3% of total assets, as compared to 32% in the US (Xiong 2017). The stock market in China is heavily speculative with volatile prices, while the bond market is still in development. In the absence of well developed financial markets in China, the financial sector sector is dominated by financial intermediaries, mainly banks. Bank deposits are 85% of all financial assets in China, and these savings are invested

Using a Capital Asset Pricing Model (CAPM), this research showed that stock price indices in the two countries indeed have a long-term and stable relationship with a clear causality going from the U.S. to Vietnam. Surprisingly, after augmenting the traditional theory with the exchange-rate volatility and applying a newly developed time-series econometric technique, Vietnamese stock market has been proved to be also affected by the foreign exchange market. This is a new transmission mechanism through which financial markets between the two countries are connected. The finding also hopes to redefine the famous Efficient Market Hypothesis (EMH), a cornerstone in finance.