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About Confusion around Chinese Funds

If You Are Confused about Chinese Funds, This Article Is for You

For the outsider, the Chinese stock market can be difficult to follow, and for the investor, it can be a much greater risk due to its unpredictable nature, its unique way of trading and the uncertainties of the China economy. If you are one of those people who are confused by Chinese funds and how they are traded, then this article is for you.

History of the stock market

There are two main stock markets in China: The Shanghai Stock Exchange and the Shenzhen Stock Exchange. The Shanghai Stock Exchange has its origins back in 1891, when it was known as the Shanghai Stockholders Association; it changed its name in 1904 to the Shanghai Stock Exchange. Trading came to a halt during the Communist revolution, but when reforms were introduced, the Shanghai Stock Exchange was relaunched in its current form in 1990. The Shenzhen stock exchange had its unofficial launch in 1987; it was officially launched in 1990.

How does the Chinese stock market differ from others?

Chinese stock markets work differently from others around the world. First of all, the vast majority of trades are made by retail investors and not corporate investors, and company values aren’t nearly as dependant on shares as they are around the rest of the globe. Much of the growth in investors in recent years is being fueled by ordinary citizens, who are now investing in stocks in their millions. However, this trading from inexperienced investors can often add to the precarious nature of the Chinese stock markets.
Stock market crisis

The Chinese stock market has always been especially volatile, however, in 2015 a dramatic fall in values, caused by a weak dollar and a slowdown in key industries like manufacturing, led to a sharp fall in the value of the main index. 2016 hasn’t got off to a strong start with trading already being halted twice in January due to measures put in place to stop trading once the market values fall to a set percentage.

Stock market crisis

The Chinese stock market has always been especially volatile, however, in 2015 a dramatic fall in values, caused by a weak dollar and a slowdown in key industries like manufacturing, led to a sharp fall in the value of the main index. 2016 hasn’t got off to a strong start with trading already being halted twice in January due to measures put in place to stop trading once the market values fall to a set percentage.

Investing on the stock market

It is estimated that just 2 per cent of outside investors trade in Chinese funds; when shares are purchased, it is often through mutual funds or a broker. Some experts say now could be a good time to buy stock due to their low valuations. However, anyone considering doing this should be well aware thatfurther falls in China’s fund performance are likely, and with its struggling economy, any investment would have to be for the long term if it is going to pay dividends. Conversely, according to FT.com, some portfolio managers warn against investing in Chinese shares at any time.

China’s stock market and the effect on the global economy
When last year’s crash occurred, it sparked dramatic falls across the globe, and markets around the world lost billions of values. However, as so few overseas traders hold shares in China, the fund’s performance don’t have too much of an impact on investors outside of the country.

The main concern outside of China is the reason behind the fall in share prices, which is slow growth. China is responsible for 12 per cent of the world’s GDP, and a poor performing economy in China could have a negative impact on the global economy as a whole, which could ultimately slow the recovery.

Related topics:Beginning Investor China Global Markets Overview
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