Here’s what fuelled the China market panic: BIS

A Chinese day trader takes notes on the activity of the market he watches a stock ticker at a local brokerage house in Beijing, China.
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A Chinese day trader takes notes on the activity of the market he watches a stock ticker at a local brokerage house in Beijing, China.

Trading in Chinese equities hit around six times the previous year's levels in June 2015 as new retail investors piled in to the markets before the summer crash, according to the Bank of International Settlements, banking watchdog that gave early warning of the global credit crisis.

When the history of the Chinese stock market panic of 2015 is written, the 56 million new trading accounts opened in the first half of 2015, predominantly by retail investors, are likely to be seen as one of the warning signs of crisis.

The turnover of trading in Chinese equities exceeded the U.S. stock market, a much more freely-traded bourse seen as a safe haven, in the month up to 12 June as the retail investors piled in, according to a BIS report, published Sunday. This trading presaged some of the worst market volatility ever seen in the country later in the summer.


Concerns about China and emerging markets continue to weigh on investors, according to BIS. The slowing of financing of emerging market economies in the early half of the year was an indication of further turmoil to come. Bank lending to emerging market economies shrank by $52 billion (when adjusted for exchange rate changes) in the first quarter of 2015, according to BIS statistics.

"We are not seeing isolated tremors, but the release of pressure that has gradually accumulated over the years along major fault lines," Claudio Borio, the bank's chief economist, warned in a call with reporters.

Much of the investment worries around China center on fears that its economy is much weaker than shown in official statistics – fears which have been backed up by recent central bank actions.

"Developments in China, coupled with the Greek negotiations in June and early July, dented the confidence of investors and weighed on asset prices globally. A self-reinforcing cycle of weakness followed in commodity prices, then in emerging economy equity markets and exchange rates, leading to upsets in advanced economy equity markets," the bank said in a statement.

- By CNBC's Catherine Boyle