China's Stock Market Plunge is Felt Around the World

In the first week of 2016, China's stock market experienced two plunges that resulted in their circuit breaker suspending trade. On Thursday, the Chinese stock market closed less than 30 minutes after opening. China's stock market troubles impacted other countries as well, indicating China's importance in the world.

Many markets around the world felt the hit. For example, the DOW Jones Index dropped by over 1.2% during those 30 minutes. Hours before the U.S. market opened for trade, futures for the DOW Jones Index were already down by over 380 points.

Futures for the Bovespa Index in Brazil were down by 850 points. The major indexes in England and France were lowered by almost 3%, and the German DAX Index fell more than 3.5%.

Another negative side effect of China's stock market plunge is commodities around the world decreased in price. Crude oil fell to the lowest point its been in 12 years.

Why is China having trouble with their stock market? Most investors in China blame it on the circuit breaker because it deprives them of the chance to bring markets back up. Analysts, however, think it's due to Chinese officials not releasing enough information about the circuit breaker and policies. Others attribute the reason to China's central bank allowing its currency to weaken.

What has China done to solve the problem? China has now turned off the circuit breaker that automatically suspended trade in the market if a key index drops by 7%. According to Deng Ke, spokesman for the China Securities Regulatory Commission, "currently, the negative effects of the mechanism are larger than positive effects." Investors will certainly be happy about this news as they think it was a main reason the market was suffering.

The sharp drops in China's stock market and their circuit breaker mechanism has had negative impacts on other markets around the world, including the U.S., England, Brazil, and Germany. China has suspended the circuit breaker mechanism in an attempt to fix the problem. The circuit breaker was a new mechanism implemented this year, so there's a good chance China will soon recover.

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