Market Overview

How China's Market Crash Could Impact The U.S.

How China's Market Crash Could Impact The U.S.
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After falling significantly last week, the Shanghai Composite Index again fell 5.90 percent Wednesday. Taking into account this recent move, the index is down more than 30 percent from its mid-June peak. However, it is still up more than 8 percent year-to-date.

Russ Koesterich, chief investment strategist and head of model portfolio and solutions business at BlackRock, Inc. (NYSE: BLK), was on CNBC Wednesday to discuss the overall outlook for Chinese equities and how the crash in China will impact U.S. investors.

Getting Closer To Fair Value

"This was a market that over the last year really was driven by speculation," Koesterich said. "The market more than doubled, and in many cases went up multiples of that and almost all of those gains were built multiple expansion – investors paying more per dollar of earnings."

He continued, "Yes, we have seen a seen a significant correction, but if you put that into context of that very big buildup over the last 12 months, to my mind, there is more downside for Chinese stocks. We are getting closer to something resembling fair value; I am not sure we are there yet."

Related Link: 40% Of Stocks In China's Shenzhen Exchange Were Suspended Today

Impact On U.S.

Koesterich was asked if the slump in Chinese stock market could have any impact on the U.S. equity markets and the U.S. economy. He replied, "I don't believe that a selloff in the Chinese equity market affects the U.S. economy. However, it does affect investor sentiment, and it is a global market. We saw that with bonds earlier in the year, and it's also true with stocks.

"So, if we have an environment, which is characterized by a risk-off sentiment because of the crashing of the Chinese stock market and the issues in Greece, it's unrealistic to believe that won't affect U.S. investor behavior," Koesterich said.

Image Credit: Public Domain

Posted-In: CNBC Russ Koesterich Shanghai Composite IndexAnalyst Color Forex Global Media Best of Benzinga


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