The "deleveraging" of a single company or institution will not have much impact on the market and economy. But if the whole market enters this process, most institutions and investors are forced or take the initiative to spit out the money borrowed by leverage in the past, then the impact is obviously extraordinary.
The impact of deleveraging
What is the significance of stock market deleveraging? What will be the impact of deleveraging? The "deleveraging" of a single company or institution will not have much impact on the market and economy. But if the whole market enters this process, most institutions and investors are forced or take the initiative to spit out the money borrowed by leverage in the past, then the impact is obviously extraordinary.
During the economic boom, the financial market was flooded with a large number of complex and highly leveraged investment tools. If most institutions and investors join the ranks of "deleveraging", these investment tools will be dissolved, the derivatives market will also shrink, and related industries will be hurt. With the sharp decrease of market liquidity, it will lead to economic recession.
In the process of deleveraging, China's economy will be impacted to some extent.
First of all, "deleveraging of financial products" has little impact on China. Due to the implementation of capital account control, most of China's foreign financial investment is in the form of central bank foreign exchange reserve investment. This kind of investment has always been cautious and conservative, and basically will not be involved in highly leveraged wealth management products. Even if there is a loss, it cannot be compared with the losses of other types of investors.
Secondly, "deleveraging of financial institutions" and "deleveraging of investors" have relatively little impact on China.