China surprised the markets today by speeding up the devaluation of the yuan to its lowest level in nearly five years. According to experts, devaluation is seen as the last resort to boost China’s exports. Due to this, China’s stock market sank, and triggered the recently installed circuit breaker which halts the markets for 15 minutes after a 5% decline, and shuts down the day’s trading at 7% decline. And thus, China saw its second stock market crash in a week! Today may also be the shortest trading day for China as the trading halted after just 30 minutes of opening.
This has caused the nervousness amongst the investors. According to Christopher Balding, a professor of finance and economics at Peking University’s HSBC Business School, Chinese stock market is very much over valued and in order to get a reasonable valuation, we should be looking at a significant fall. Considering the actions of the Government, (shutting down the trading at just 7% decline whereas, a comparatively stable U.S. market has a 20% threshold) it is less likely that the government would allow a significant fall which would give a reasonable valuation.