Reading too much into Shanghai’s Black Monday is unwise, writes Ben Walker

It was a pretty miserable Monday morning here in London. The hot summer sunshine of the weekend had been replaced by good old-fashioned, persistent English rain. An industrial dispute on the city’s rapid transit system, the London Underground, had led trade unions to call two 24-hour strikes for later in the week. And China was apparently going bust – its stock market was nosediving and ours was following suit. When New York woke up, it promptly joined in the misery.

My mind shot back to 2008. “Here we go again.”

Except so far, we haven’t gone anywhere. The European markets are rallying this morning. London and Paris have largely shrugged off Shanghai’s losses. And, at the time of writing, Germany’s Dax is up 2.3%. The sun has come out. They’ve even called off the Underground strike.

It’s unwise to read too much into China’s share slump. Most analysts think that the Shanghai exchange has been grossly overvalued for some time. If this is a correction, it probably tells us very little about the state of the real economy in the eastern superpower, less still the wider world.

That the European markets seem largely unmoved by the Chinese experience may yet be instructive. We await New York’s response.
It’s far too early to tell what’s going on. It may or may not amount to much. But those who draw conclusions about the world economy from yesterday’s crash in China are surely overreaching. To better understand the current trade economy read this full review that describes the basis of trade and its importance.