China stock market collapse bigger concern than Greece: S&P

July 08, 2015 19:08
The Greek debt crisis pales in comparison to the current troubles in China's stock markets, say some observers. Photo: AP

China's stock market problems could pose a bigger threat to the world economy than the crisis in Greece, according to a senior executive with credit ratings agency Standard & Poor's.

"In my mind, the Chinese challenges out-shadow the Greek one by a large margin," Moritz Kraemer, managing director of S&P's sovereign rating unit, said in a webcast Tuesday.

His comments came after China's A-share markets shed more then 30 percent of their value since mid-June, a sudden downward spiral that has spooked global investors and roiled world markets.

The China market crash led to fresh doubts over the prospects of world's second largest economy, adding to the global concerns about the Greek debt situation.

On Wednesday, the Shanghai Composite Index ended 5.9 percent lower at 3,507.19 after another major selloff as panic gripped investors. The market rout prompted more than half of the listed firms to suspend trade.

Amid jitters over the developments in China, the Hong Kong stock market suffered its biggest one-day decline in more than six years.

The Hang Seng Index plunged by about 8.5 percent, or 2,100 points, to 22,836.82 about half an hour before the close of trading on Wednesday, before clawing back some of the losses and ending at 23,516.56, a decline of 5.84 percent.

The losses in China came despite government measures to boost liquidity and stabilize the markets. 

S&P's Kraemer said the China problems are a bigger concern now for global investors than the possible exit of Greece from the eurozone.   

He believes the chances of Greece leaving the euro are greater than 50 on a scale of 100.

However, there is still optimism that some agreement can be reached between the country and its creditors. Greece needs to repay a 3.5 billion euro loan to the European central Bank by July 20.

A crucial meeting was held Tuesday between eurozone finance ministers and Greece.

Greek representatives were expected to come up with a serious package at the meeting for fresh bailout talks to continue.

If Greece doesn't come to the meeting with a plan "it's over", said Kraemer.

According to a New York Times report Wednesday, frustrated European leaders extended the deadline to Sunday after the Greek government failed to offer new proposals at the Tuesday meeting.

"The situation is really critical and unfortunately we can’t exclude the black scenarios of no agreement," the paper quoted Donald Tusk, the president of the European Council, as saying.

However, S&P's Kraemer believes the contagion will be limited as linkages between Greece and other European countries have been falling in the recent past as leaders prepared for Greek debt default.

-- Contact us at [email protected]


EJ Insight reporter