Commodities & Food Market Trade in China is Collapsing Owing to the Country’s Weakening Stock Market

Published Date : Jul 08, 2015

On Wednesday, the Shanghai Composite Index crashed to three months low, and so did the market value of raw materials from lead to silver, and from sugar to eggs. These domains earlier had attracted a record number of amateur investors, thereby becoming the second largest stock market in the world outside the United States. 

China has adopted multiple measures to stabilize equities, however these measures have failed to have an effect on the present statistics of the Chinese stock market. Revealing the prevailing condition a trader registered with Guoyun Investment, a private asset management company based in Beijing, said that an increasing number of investors are selling off their shares in commodity and food market to get their hands on cash. While some of the investors are selling off their shares to cover their margin calls in the stock market others are doing it out of fear that the Chinese economy will soon hit a downturn triggered by this crisis. 

The slowing economic growth rate of China to a large extent can be attributed to the plummeting commodity prices globally. Owing to the declining commodity prices, especially in the food sector, China, a country that happens to be the largest energy, metals, and grains consumer globally is experience large-scale adverse economic impacts. So far this year, the Bloomberg Commodities Index that keeps a vigil on 22 raw materials has declined to 7%. Sources revealed, that China has lost 4.6% in the last three days, which is most recorded since 2011. 

Although the sentiment is triggered due to the rumors of weakening demand, the selloff witnessed on Wednesday has further aggravated the rout in the China’s equity market, as told by Ivan Szpakowski, a Citigroup’s (Hong Kong) community strategist. Szpakowski said the rout was less commodity specific, and it should not be regarded as a representation of China’s weakening economic growth or commodity demand. However, the spillover in the equities market is largely spurred by the deterioration in sentiments.