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China's stock market: Biggest drop for 5 years but party's not over

The Chinese stock market has seen its largest drop in five years after almost two weeks of straight gains and breaking the 3000 barrier for the first time since 2011. Head of Equity Strategy Peter Garnry says the intraday trading range of 13.4% is "insane" with almost USD 400 Billion traded today alone before the Shanghai Composite dropped 5.3% the largest fall for five years. Fresh drops in oil prices creating some nervousness in markets, after the near vertical climb.

So what's going on? The market has been fuelled by government rate cuts and decent US jobs data, which Chinese manufacturers rely on especially with the eurozone looking weak. Demand and excitement has reached such heights that Chinese banks have been raising deposit rates to try to stop investors withdrawing funds to plunge into the stock market. In the short term the market is now showing signs of continuing declines but with China offering greater growth potential than the US, the long term looks reasonable with many firms trading below historical averages. Despite the fact that the Chinese stock market remains largely insulated from the rest of the world, this recent run illustrates the fact that China remains a huge market for financial products and investment opportunities.

02:49 minutes
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