China’s stock markets are at it again. After an entire week off for the Lunar New Year holidays and several days of positive trading, stocks fell through the floor today (Feb. 25).
The largest selloff in a month was led by small cap stocks that trade on the Shenzhen Stock Exchange, as witnessed by the ChiNext index. The ChiNext, which is heavily weighted with entertainment, consumer, and tech companies, dropped as much as 7.8% from yesterday’s close, before finishing the day down by 7.6%.
The rest of the markets didn’t fare much better:
There is concern in China that the positive sentiment that buoyed markets after the Lunar New Year (the Shanghai index has gained 10% since its January low) is overdone. Many investors also thought that the government would cut interest rate cuts to boost the economy throughout the year—but a recent rise in house prices has left a question mark hanging over that theory, too.
Tomorrow, G20 finance ministers and central bankers will meet for two days in Shanghai. On the agenda is turmoil in the global markets, and Beijing’s clumsy handling of its yuan devaluation and stock market stimulus are sure to be a hot topic. Today’s market drop could further undermine confidence in China’s leadership.