Beyond the psychological effects on Chinese consumption, many are wondering what this incident may suggest for the global macroeconomy.  China’s economic slowdown is not a new phenomenon; China’s “actual” rate of growth (as opposed to the “official” GDP statistics, which we largely discount) has been falling precipitously for years and has worsened since the real estate market collapsed in 2014.  Despite this statistic, and China’s position as the world’s second-largest economy, global economic growth has managed to stay positive.  How?  First of all, the law of geometric averages dictates that the slower-growing-but-larger China of today contributes more to the global economy than the much-smaller-but-faster-growing China of 10 years ago.

David Fuller's view

Here is The Weekly View.

Most emerging markets, even a highly developed market such as China, are prone to bubbles.  Therefore, there is no real surprise that Shanghai A-Shares fell very sharply. 

The surprise for me was that Hong Kong’s HSI and HSCEI (H-Shares) fell so sharply.  Inevitably, some downward pull was created by the mainland indices.  However, this was extended by China’s circuit breaker restrictions on A-Share sales, which caused institutional investors to sell Hong Kong shares as proxies.  Consequently, HSI now trades at a p/e of 10.38 & yield of 3.27% and HSCEI at a p/e of 8.53 & yield of 3.47%, according to Bloomberg.  Those are valuations which might cause Warren Buffet to drool, so these indices should head higher once the dust settles in China’s A-Share market.  Currently, despite the crash they are currently 21.28% higher on the year in USD.