Financial markets experienced an awful start to the week, with no asset classes spared. The S&P 500 plunged 5% at open, finishing 11% below the May high. European stocks fell by 5%, the most since 2008. Commodities sharply slid to a 16-year low with Brent crude trading below $45 USD.

Most selling has been attributed to the slowdown of growth in China which is seen in the devaluation of the Yuan and the continued decline of Chinese equities. It remains to be seen how poor upcoming Chinese economic data is and how far the market will fall.

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The Shanghai Composite Index more than doubled since last year, driven by anticipation of growing economy, over-use of margin lending, and the heavy government support. However, it was irrational to expect the market to continue endlessly moving especially with mind blowing valuations compared by many to those during the dot-com bubble. As the market began to slide the Chinese retail investors that make up the majority of the traded volume began to exit in anticipation of further declines, unwinding heavily leveraged positions in the process. Even though the Chinese government massively interfered to boost the prices, the market fell by more than 30% in the space of one month. The recent slowdown in the Chinese economy creates a clear question: has China's stock market euphoria ended?

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