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Benedicte Gravrand, Opalesque Geneva:

Over the past three weeks, Chinese equities have tumbled as over-leveraged margin traders have unwound losses and market participants have begun to fear that the Chinese equity bubble may have now burst.

On Wednesday, the benchmark Shanghai Composite index fell another 5.9%, bringing the market's total losses to 32% in less than a month. Morgan Stanley, which made a good "sell" call on China weeks ago, now expects the index to fall as low as 3,250 by mid-2016 (it is 3,507 today). Citigroup analysts told clients the selloff has a "long way to go." China’s tumbling stock market has also led to fears of contagion to the broader financial system, especially state-owned banks, a bedrock of the economy, said the Financial Times.

The Chinese government has taken multiple measures to address this by slashing its interest rate and reserve ratio requirement, suspending trading on over 40% of listed firms, halting IPOs, and announcing plans for direct liquidity injections in the equity market (which will be led by 21 brokerage firms).

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