Why Chinese Stocks Just Took a Massive Nosedive

TIME

China’s stock market bubble may finally be bursting.

Shares of Chinese companies plunged on Friday, in the worst drop in that country’s stock market in years. The dive may end the recent quixotic run in China’s market, which has soared this year even as China’s economy has gone through its roughest patch in years. Corporate profits have fallen.

China’s Shanghai Composite index dropped 7.4% on Friday. That would be the equivalent of a more than 1,300-point drop in the Dow Jones industrial average. The Shenzhen Composite, which is dominated by tech stocks, ended trading down 7.9%.

As always in market turns, it is unclear exactly what sparked the current sell-off. Some have pointed to the fact that regulators have recently been tightening rules on buying stocks with money borrowed from a broker, or “on margin.” Officials in China are particularly concerned about stock loans that have been coming from unregulated…

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