An investor looks over his shoulders as he sits in front of screens showing stock information, at a brokerage house in Hefei, Anhui province, China, July 8, 2015. The business plans and overseas ambitions of Chinese brokerages are being shelved as Beijing pushes them to use their resources to arrest a dramatic plunge in domestic equity markets that is threatening China's economic stability. | Photo Credit: JIANAN YU
China's stock market slump has likely increased the risks considerably and also brought forward the timeline of a crisis, according to Bank of America Merrill Lynch.
It said the opaqueness of China's financial system and the lack of clear definition of risk responsibility mean that contagion risk is high, similar to the subprime crisis.
If the market continues to fall sharply, stock lending related losses could run into trillions of yuan, of which banks and brokers may have to bear a meaningful share, it added.
These potential losses can be dangerous to brokers with lower capital base; ripple effect may hit consumption, lending, other asset classes and earnings, it said.
China stocks are down more than 30 per cent over the last four weeks despite government and regulatory support.
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Published on July 8, 2015
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