Chinese Stocks Plummet 8 Percent

Chinese regulators suspended three large brokerage firms from extending margin accounts – essentially loans – for new clients for three months, and that led the Shanghai market index to plummet by more than 7 percent, the biggest drop in six years, reports Fortune. “The regulator also punished nine different brokerages for allowing unqualified traders to open leveraged accounts, Xinhua reported, which allow investors to borrow funds from their brokers to increase the size of their equity bets – sometimes by ratios of five-to-one,” reports Scott Cendrowski. He points out that the government plays a big role in the stock market with volatility tracking state edicts: The market soared after state-run media encouraged undervalued stocks for investors. “Moreover, the Shanghai market is dominated by state-owned firms, which allow only a small portion of their equity to be traded,” Cendrowski writes. “The government holds the majority.” That eliminates mergers, acquisitions and other forces. – YaleGlobal