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ECONOMY
Weekly Watch> WEEKLY WATCH NO. 33, 2011> ECONOMY
UPDATED: August 12, 2011 NO. 33 AUGUST 18, 2011
Stock Nightmare
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China's stock market witnessed a painful tumble on August 8, as the credit rating agency Standard & Poor's (S&P) lowered the rating on the U.S. sovereign debt, triggering investor worries of a new global recession.

The Shanghai Composite Index slumped 3.79 percent on August 8 to close at 2,526.82 points while the Shenzhen Composite Index lost 3.33 percent to finish at 11,312.63 points.

For the first time in history, S&P cut the rating from AAA to AA+, sending a shiver through global financial markets. The agency said there's one-in-three chance that the rating could be downgraded a further notch if conditions worsen over the next six to 24 months.

China has nearly $3.2 trillion worth of foreign exchange reserves, about 70 percent of which are holdings of U.S. Treasury securities.

Fears of a spreading debt crisis in Europe depressed confidence of global investors and accelerated panic selling of stocks, said Yi Xiaobin, an analyst with the China Galaxy Securities Co. Ltd.

In addition, Chinese investors were also worried that more tightening policies are in the pipeline as inflation jitters proliferate, said Yi.

Yi added that the domestic stock markets may continue to fluctuate amid turbulence in overseas markets, but he ruled out possibility of continuous plunges given solid corporate earnings.

"It remains to be seen whether the market will stage a rebound," said Gui Haoming, chief analyst at Shenyin & Wanguo Securities Co. Ltd. "The market recovery, in the long run, depends on controlling inflation and asset bubbles."



 
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