The media has been reporting the current market collapse resulted from last week’s devaluation of China’s currency, the yuan. The argument is that the devaluation was an admission that the Chinese economy, which has been the world’s economic growth engine, was sputtering and, without China, worldwide stock markets cannot continue to grow.
That is wrong! A devaluation helps the economy, by boosting exports. Instead, the current market collapse resulted from China’s intervening in their stock market, primarily by a ban on selling stock. Nothing focuses an investor’s mind as much as telling him he cannot get his cash. That is a guarantee of panic selling sooner or later.
While the currency devaluation, interest rate cut, and reduced bank reserves will help the overall Chinese economy, I expect the Shanghai stock market to continue falling. But, I am optimistic the linkage between that stock market and other markets worldwide has been broken, at least partially.
Capitalistic inventions (like the U.S. stock market) do not play well with non-Capitalistic versions (like the Chinese stock market).