China’s Bear Market Deepens As Stocks Fall 30% From June High, Losses Reach $3T, Or More Than Brazil’s GDP

As most investors are on edge with the situation in Greece, as a referendum vote which determines the fate of the nation’s future in the Eurozone looms this Sunday, on the other side of the world a market crash is deepening beyond a bear market, but it is hardly causing any impact to global markets.

Chart courtesy of Bloomberg

In China, stocks were surging over the past 12 months as the Shanghai Composite Index spiked 152 percent and reached a 52-week high through June 12, and the market cap of Chinese stocks rose above $10 trillion for the first time ever. However, Chinese stocks have sharply changed direction and recently suffered their biggest two-week plunge since December 1996 after falling over 20 percent and fell into a bear market on Monday.

But the bear market has only grown deeper, as over the course of this week the plunge in Chinese equities has broadened, reaching its steepest three-week decline since 1992, with nearly $3 trillion in market capitalization erased through Thursday, which is more than Brazil’s gross domestic product (GDP), according to Reuters.

But it ‘s not over yet. On Friday, losses in China deepened as its CSI300 Index closed -5.4 percent, bringing losses on the week to 10.4 percent, and the Shanghai Composite Index closed -5.8 percent.

Losses on Friday bring the three-week tumble to nearly 30 percent and wiped out most of this year’s gains.

Following steep losses, the China Securities Regulatory Commission (CSRC) has set up a team to look at “clues of illegal manipulation across markets” following weeks of plummeting stocks, the China Daily reported on Thursday.

#Breaking: #CSRC announced Thu to investigate into suspected manipulation of stock markets http://t.co/znwBIuSSeK pic.twitter.com/jyxe4FZwuW

— People’s Daily,China (@PDChina) July 2, 2015

The China Financial Futures Exchange (CFFEX) has suspended 19 accounts from short selling for a month in an effort to avoid a further market crash, according to Reuters.

But the market crash in China could get a whole lot worse, according to Patrick Chovanec, the Managing Director and Chief Strategist at Silvercrest Asset Management, who said on June 30 that Chinese stocks could fall another 50 percent.

Here’s my appearance on Bloomberg tonight, where I said China stocks could fall another 50% http://t.co/EVcJIIDz3L

— Patrick Chovanec (@prchovanec) June 30, 2015

“What happens in China will turn out to be far more consequential than any sting that Greece may deliver over the coming weeks or months,” HSBC’s Frederic Neumann told Bloomberg. “As China’s equity markets lose their roar, the risk is that demand more broadly on the Mainland could take a hit. That would knock out an essential engine of world demand over the past decade. As dramatic as events in Greece currently appear, however, ultimately, it’s difficult to see these proving decisive for the world economy.”

“The government must rescue the market, not with empty words, but with real silver and gold,” Fu Xuejun, a strategist at Huarong Securities Co. told Reuters, adding that a full-blown market crash was likely to endanger the banking system, hit consumption, and trigger social instability.