China's stock market crash and the country's economic decline will have serious ramifications for Malaysia, which saw its currency remain at pre-Asian Financial Crisis levels yesterday after Shanghai Composite Index dropped another 1.29%, bringing its total losses to over 30% in the last three weeks.
Malaysia saw a third day of losses in both its share market and the ringgit, which fell 0.28% and 0.05% respectively yesterday.
The ringgit is predicted to slump to a low of 4.00 against the U.S. dollar on China's decline by the end of this year, said Hoo Ke Ping, a prominent economic macroanalyst based in Kuala Lumpur.
Some 90 million traders have been selling down their shares and wiping off some US$2.4 trillion of value from Chinese companies , which is seen as being significantly overvalued .
The price to earnings ratio of the Shanghai Composite Index is 23, compared with 12 for the Hong Kong’s Hang Sheng Index, on which many of the same Chinese firms are listed.
The Shenzhen Composite Index, which has seen its value drop by 30%, has an average P/E ratio of 50 .
President Xi Jinping's administration has reacted to the sell down through a series of capital controls, such as getting some 200 China-listed firms halt trading in shares, according to state media.
It has also obtained a pledge from China’s top brokerages to collectively buy at least 120 billion yuan of shares to help steady the market and not sell while the Shanghai Composite Index remains below 4,500 points.
In addition, the China Securities Regulatory Commission has opened an investigation into what it claims is illegal manipulation across markets but even this has been labelled a desperate attempt to direct attention away from the overvaluation of China's stocks.
Analysts say China will not succeed in stemming the decline.
“They will fail,” said Hoo.
Chinese investors trade some US$200 billion worth of shares on the Shanghai and Shenzhen markets everyday, and a proposed $19 billion fund does not look like it will have much of an effect, said Hoo.
“Nothing seems to have worked,” said Li-Gang Liu, chief economist for Greater China at Australia and New Zealand Banking Group Limited Bank in a phone call from Hong Kong.
“It appears that current share prices are still overvalued,” Liu told The Malaysian Reserve.
Liu estimates China's growth for the first quarter of this year to be 6.8%, lower than the People's Republic of China's forecast of 7%, which it revised from an earlier 7.5%.
The main concern for Malaysia is how China’s decline has affected many commodity-producing countries, which rely on the country as a key export market.
China's decline has resulted in a drop in global commodity prices, of which exports form a significant portion of Malaysia's gross domestic product.
“Export-driven economies have seen currency drops in tandem with the decline in commodity prices due to China’s slump in growth,” said Hoo.
Thailand, known as one of the world's biggest exports of rice , has seen the baht decline to 34.00 against the dollar this year from a previous 31.70 high, and Australia has also seen its dollar currency drop to a nine year low against the greenback.
“Already, the halving of China’s growth has wreaked havoc with global commodity markets and has negatively influenced growth in those East Asian economies that are a vital part of China’s manufacturing supply chain,” said Ira Kalish, chief global economist at Deloitte, said in a response to ChinaFile on July 2.
“It could be argued that the imbalances in China’s economy thus represent more of a risk to the global economy than the current and much discussed situation in Greece,” said Kalish.
The country which plays host to the world's biggest population is Malaysia's second biggest export market after Singapore, importing some 12% to 13% of Malaysia's exported goods every year.
Since earlier this year, Malaysia's exports have declined due to falling demand from China.
In 2013, growth in Malaysia-China trade was 12%.
But last year, it was just 2%.
Malaysia saw a third day of losses in both its share market and the ringgit, which fell 0.28% and 0.05% respectively yesterday.
The ringgit is predicted to slump to a low of 4.00 against the U.S. dollar on China's decline by the end of this year, said Hoo Ke Ping, a prominent economic macroanalyst based in Kuala Lumpur.
Some 90 million traders have been selling down their shares and wiping off some US$2.4 trillion of value from Chinese companies , which is seen as being significantly overvalued .
The price to earnings ratio of the Shanghai Composite Index is 23, compared with 12 for the Hong Kong’s Hang Sheng Index, on which many of the same Chinese firms are listed.
The Shenzhen Composite Index, which has seen its value drop by 30%, has an average P/E ratio of 50 .
President Xi Jinping's administration has reacted to the sell down through a series of capital controls, such as getting some 200 China-listed firms halt trading in shares, according to state media.
It has also obtained a pledge from China’s top brokerages to collectively buy at least 120 billion yuan of shares to help steady the market and not sell while the Shanghai Composite Index remains below 4,500 points.
In addition, the China Securities Regulatory Commission has opened an investigation into what it claims is illegal manipulation across markets but even this has been labelled a desperate attempt to direct attention away from the overvaluation of China's stocks.
Analysts say China will not succeed in stemming the decline.
“They will fail,” said Hoo.
Chinese investors trade some US$200 billion worth of shares on the Shanghai and Shenzhen markets everyday, and a proposed $19 billion fund does not look like it will have much of an effect, said Hoo.
“Nothing seems to have worked,” said Li-Gang Liu, chief economist for Greater China at Australia and New Zealand Banking Group Limited Bank in a phone call from Hong Kong.
“It appears that current share prices are still overvalued,” Liu told The Malaysian Reserve.
Liu estimates China's growth for the first quarter of this year to be 6.8%, lower than the People's Republic of China's forecast of 7%, which it revised from an earlier 7.5%.
The main concern for Malaysia is how China’s decline has affected many commodity-producing countries, which rely on the country as a key export market.
China's decline has resulted in a drop in global commodity prices, of which exports form a significant portion of Malaysia's gross domestic product.
“Export-driven economies have seen currency drops in tandem with the decline in commodity prices due to China’s slump in growth,” said Hoo.
Thailand, known as one of the world's biggest exports of rice , has seen the baht decline to 34.00 against the dollar this year from a previous 31.70 high, and Australia has also seen its dollar currency drop to a nine year low against the greenback.
“Already, the halving of China’s growth has wreaked havoc with global commodity markets and has negatively influenced growth in those East Asian economies that are a vital part of China’s manufacturing supply chain,” said Ira Kalish, chief global economist at Deloitte, said in a response to ChinaFile on July 2.
“It could be argued that the imbalances in China’s economy thus represent more of a risk to the global economy than the current and much discussed situation in Greece,” said Kalish.
The country which plays host to the world's biggest population is Malaysia's second biggest export market after Singapore, importing some 12% to 13% of Malaysia's exported goods every year.
Since earlier this year, Malaysia's exports have declined due to falling demand from China.
In 2013, growth in Malaysia-China trade was 12%.
But last year, it was just 2%.
Source: http://www.themalaysianreserve.com/new/story/china-stock-market-crash-seen-dragging-down-ringgit
#Editor comment: This is not the original post title, it has been amended by me to better reflect the article.
#Editor comment: This is not the original post title, it has been amended by me to better reflect the article.
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