The Chinese stock market has been going through
a turbulent period - the building of a stock market bubble, and
the bursting of that bubble. The question being asked now is,
how much will the Chinese economy be affected as a result of this
During the past 12 months, the market capitalization
of the Shanghai exchange had risen by some 130%, and the Shenzhen
exchange by nearly 150%. This trading activity was to a large
extent fuelled by relatively unsophisticated individual private
investors, many of whom were trading using borrowed money.
Meanwhile, as the Chinese stock market capitalization
was expanding, the Chinese economy was gradually cooling. This
could have been taken as a warning of a possible stock market
bubble. But the bubble continued to grow, and price-to-earning
ratios for Chinese stocks were averaging around 70:1 (the worldwide
average is 18.5:1).
The bubble burst in june, and the market slide continued
into early July. The stck market coollapse wiped out some $3 trillion
of stock market capitalization.
But as the market collapse was taking place, the
Chinese Government intervened, imposing a number of stock-market
and non-market regulations. This intervention has succeeded, and
the situation has stabilized. It is still too early to know the
full ramifications of this bursting of the bubble. One vital issue
is how to maintain investor confidence. Investors are still assessing
But let us not forget the old adage, which says something
like 'when the big one sneezes, the small ones catch cold.' In
this case, the Chinese stock market bubble was the sneeze; the
Asian gems and jewellery exporters , notably in Thailand and India,
are the ones who caught cold.
During the time of the Chinese bubble, from about
mid-2014 to mid-2015. Thai and Indian exporters report finding
that Chinese demand for high-value gems and jewellery was declining
significantly. Chinese investors had apparently moved away from
gems and jewellery, preferring to seek the heady profits of the
What happens now, when the chinese stock market is
back on an even keel, remains to be seen, Perhaps Chinese investors
will return to the more traditional stores of wealth - gold, and
perhaps jade and diamonds. How long this may take is an open question.
The gems and jewellery industry is paying close attention as the
Thai gemstone exhibitors during the Hong Kong June
show were disappointed by the drastic drop in buyers from Mainland,
China. Till now the market has not picked up and exhibitors are
not betting on any show in Beijing, Shanghai or Guangzhou during
the rest of the year. As we are heading for the Bangkok Show which
starts on the 10th September, all exhbitors are crossing their
fingers and hoping foe the best. Till now all major shows this
year were slow with poor attendance.