While the World Watches Greece, China’s Stock Market Is Imploding

It had to happen at some point. Just a few weeks ago the Shenzhen and Shanghai Stock Exchanges were collectively worth roughly $10 trillion. Within a single year, the Shanghai Exchange had surged from just over 2000 points, to well over 5000. It was just a matter of time before one of the world’s most expensive bubbles would burst, and it finally has.

While everyone had their eyes on the unfolding crisis in Greece, both of China’s stock markets plummeted 30% of their previous value in June. By all accounts, the bubble was largely fueled by two forces: Average investors taking on debt to invest in stocks, as well as government manipulations.

What’s worse, is how financial institutions in China are reacting to the healthy dose of realism that their stock market so desperately needed. The country’s top stock brokerages decided to collectively buy almost $20 billion in stocks to help stabilize the market, part of which was supplied by the government. You might recognize this as the award winning strategy that was employed by several top financial firms in the US, just after the market crash of 1929. The Great Depression quickly followed. When a bubble of this magnitude bursts, nothing on Heaven or Earth can stop it. (Take a look at how fast this bubble grew.)