California May Bear Brunt of Chinese Market Crash

By ALEXANDER NGUYEN (Patch Staff)

The stock market crash in China on Monday will have the most impact in California, according to one economist.

The once-hot Shanghai Composite in China fell more than 8 percent Monday, bringing it into the negative territory for the first time this year. So far, the markets in China have lost more than 20 percent of their value -- what investors call a bear market.

The crash also caused other markets in the world to fall. Tokyo’s Nikkei 225 was down more than 4 percent, London’s FTSE 100 was down more than 4.5 percent and Europe Stoxx 600 was down more than 5 percent.

RELATED:

• 5 Things To Know About The Stock Market Plunge

“There’s worry of a global slowdown,” said prof. Alan Gin of the AHLERS Center for International Business at the University of San Diego.

Because California is part of the Pacific Rim, the state’s economy will bear the brunt of the crash more so than any other states, he said.

Part of the reason for that is because of two tech giants located in the California, Apple and Qualcomm. China is a big consumer technology market and any slowdown there will have a big impact on tech companies in the U.S.

Gin believes the Chinese stock market bubble has popped.

The situation was enough of a concern that Apple’s CEO Tim Cook went on the offensive Monday to calm investors fears.

“I get updates on our performance in China every day, including this morning, and I can tell you that we have continued to experience strong growth for our business in China through July and August,” he wrote in an e-mail to CNBC’s Jim Cramer.

Apple’s stock was down 6 percent Monday morning on the NASDAQ exchange. By close of trading, the stock was down 2.5 percent.

Qualcomm is also under pressure, Gin said. The company, last month, announced layoffs to save more than $1 billion.

“We are making fundamental changes to position Qualcomm for improved execution, financial and operating performance,” CEO of Qualcomm Steve Mollenkopf said at the time.

The concern in the Bay Area is the housing ‘tech bubble.’ Last month, a study by USD found that housing prices in the Bay Area were buoyed by high technology stock valuation.

“When the next recession hits, prices could decline in the ‘San’ markets, including San Francisco, San Rafael and San Diego,” Norm Miller, the Hahn Chairman of Real Estate Finance in the School of Business Administration’s Burnham-Moores Center for Real Estate, said at the time.

Gin, however, doesn’t think the U.S. has tipped over into recession. Monday’s U.S. market drop was more of a correction than a crash.

“The U.S. has had a good four-year-plus run without a correction,” he said. “One is long over due. It might be healthy as far as the long-term is concerned.”

Though it will have an effect on consumer’s confidence and what Gin calls the ‘wealth effect.’

“People feel poorer so they’re going to cut down on spending,” he said.

With a large correction such as the one Monday, investors tend to be more risk adverse, prof. Brad Barber of UC Davis said.

How long they stay risk-adverse depends on “how deep the correction is,” he said.

That may translate into a slow down in terms of job growth, Gin said. California’s unemployment rate has seen a steady decline in the past few years and we may see a stabilization and the unemployment rate may not come down as fast.

For long-investors, though, it may be a good time to invest, he said.

“Now maybe a good time to pick up some bargains,” Gin said.