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Why does Chinese volatility affect the Australian share market?

By February 1, 2016November 15th, 2023Uncategorized

China’s stock market took a turn for the worse recently, and while the share market has now stabilized, investors have been burnt waiting for the dust to settle.

In 2015, China experienced their weakest GDP growth in 25 years. Their GDP annual growth rate averaged 9.88% from 1989, but dropped down to 6.9% last year.

The dropping of GDP is leaving investors in a panic, as this is the first time growth has plummeted since the 1990 boom.

Shares dropped in value by a third last year, and companies stopped trading to prevent further loss. The Chinese stock market’s value continued to drop, which contrasts heavily against the boom of spending by investors the previous year. This resulted in a boosted economic rate at the time, encouraging investors to borrow money for further investments, and the cycle continuing.

Now, people are hesitant to invest in more shares at the risk of another crash. January 2016 saw China’s stock market fall by 18%, and investors are wary of it happening again.

What does this mean for Australians?

China’s volatility has a widespread impact on Australia’s economy, with the ASX falling 1.5% before moving back up to 2% by midday the same day. This could potentially affect the Australian property market, job security and put added stress on small business owners. Job uncertainty is created due to Australia’s exposure to China’s growth, as there is a risk involved by anything of Chinese demand.

Plummets on the share market affect consumer confidence, and therefore falling stock rates caused caution within the property market. China’s GDP growth has been the cause of drops in the prices of shares for two of our most traded stocks – Rio Tinto and BHP, as they are both directly involved in China’s need for mining resources.

For Australian shareholders, this means the market could have lost as much as $60 billion in value during the crash. If you time the market before a market crash, you save yourself from loss and time yourself back into shares when the market turns around – that is the time to achieve maximum profit.

Don’t get stuck in a trap of waiting for too long or sitting on your hands. During risky and unpredictable times, protecting your capital is crucial. This can be done with SPA3, our product with risk management tools to help guide you with your decision-making process during rocky times.

To get started, call Share Wealth Systems today on 03 9585 0300.

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