Although the drop in China’s stock markets began on June 5, 2015 and ran through August 2015, there were new market challenges that emerged in January of 2016. These repeated drops in China’s markets has caused Chinese and international investors to re-think their approach to investing in traditional assets, and seek-out other, less-risky options. For many investment-seekers, alternative investments in hard-assets like investing in containers have emerged as the ideal investment solution.
Since the sharp decline began, top markets such as Shanghai Stock Exchange have tumbled; at one point losing a third of their value in less than a month. This means that investors in China and around the world have lost millions and millions of dollars.
Regrettably, the stock market instability has made its way outside China and into other foreign markets. The Nikkei index in Japan experienced a 4.6% slip in their normal trading value, and the European market dropped by 5%; even the Dow, and the Germany’s DAX have experienced losses. Although the markets have since regained their stability, and some have even gained ground, returns on stock market investments have decreased and the associated risks have increased.
From my perspective the Chinese government could use these three different policies and methods to solve the issues in their market and mend their economy.
Firstly, the government could buy stocks. One way to accomplish this is to lend money to asset managers like a brokerage company so that they can do a buyback of stocks. Another way to be successful is for the Chinese government should buy small and average performing stocks.
Secondly, the government could use new stimulus plans to allocate huge amounts of investment into different areas of the economy that encourage growth and act as pillars of the economy. Making investments in shipping ports and infrastructure have demonstrated they can drive economic growth.
Thirdly, China should aim at increasing the spending power of its citizens.
The steady drop in the Chinese stock market has created financial uncertainty throughout the world, and in doing so, has shed the light on the increased risk stock market investments pose to investors’ wealth. That said, “money” is one thing, but some of the investors have lost more than personal wealth in the stock market; they have lost interest too. Many of the investors who are discouraged by the performance of traditional assets (like stocks) are looking to rebuild their wealth by including more alternative assets in their portfolio.