Courtesy of John Nyaradi.

Shanghai Composite Index collapses on liquidity fears

The Shanghai Composite Index imploded on Monday in Asia, continuing the sharp decline that started in late May.

The Shanghai Composite (NYSEARCA:FXI) dropped more than 5% as global investors worry about a potential liquidity crisis in the country.  The CSI 300 Index that includes China’s largest companies, dropped more than 6% and into bear market territory.

The central bank of China seems to be joining the U.S. Federal Reserve in tightening monetary policy which adds uncertainty and fear to already jittery global markets.

The Shanghai Composite Index (NYSEARCA:FXI) was joined by Hong Kong’s Hang Seng Index (NYSEARCA:EWH) which dropped more than 2% over night.

China’s economy has been slowing for sometime and that development, along with slower growth across the emerging market world, (NYSEARCA:EEM) has added to concern for growth in developed nations which export to the region.

Goldman Sach’s recently downgraded China’s GDP forecasts as tighter credit is expected to dampen economic growth and activity.

Commodity prices also shared in China’s pain as the world’s second largest and fastest growing economy slows.

Oil (NYSEARCA:USO) fell 0.35% in early Monday trade in the U.S. to $93.36 while gold (NYSEARCA:GLD) extended its bear market decline.

Bottom line:  The Shanghai Composite Index is a bell whether for China’s economy and the emerging world, and as it approaches bear market territory, it casts a shadow across the global financial landscape.

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