Forget your plans for a quiet, relaxing summer. The stock markets of the world's second largest economy are tumbling; and when Chinese equities turn bearish, it can be brutal.
This is unlikely to be a localized event. The big fear is a rerun of China’s stock market rout of summer 2015, which saw a 45% selloff. There were further major selloffs in early 2016 and 2018. The knock-on effect for emerging markets then saw average credit spreads rise by a quarter and the MSCI emerging markets equity ETF fall by over 25% in the second half of 2015 into early 2016. China’s latest stumble could lead to skinned knees around the world.
Beijing’s crackdown over the weekend on for-profit school tutoring is just one part of a much wider reshape of the tech economy in China. And it is more likely just a beginning, not the end of the process. It’s also becoming a major inflection point for global investors to evaluate Chinese and China-linked assets. As one recent analysis put it: "China doesn't care how much money you lose.” Goldman Sachs Group Inc. and JPMorgan Chase & Co. will not be alone in turning cautious on Chinese stocks.