Hang on

Do you like thrill rides? Are you up for a good scare? Try this one on for size:

Chinese equities have suffered the sharpest one-day crash in eight years, sending powerful tremors through global commodity markets and smashing currencies across East Asia, Latin America and Africa.

The Shanghai Composite index fell 8.5pc despite emergency measures to shore up the market, with a roster of the biggest blue-chip companies down by the maximum daily limit of 10pc. The mood was further soured by news that corporated profits in China are now contracting in absolute terms, falling 0.3pc over the past year.

The violence of the moves unnerved investors worldwide, stirring fears that the Communist Party may be losing control after stoking a series of epic bubbles in property, corporate investment and equities to keep up the blistering pace of economic growth.

What happens if the Chinese gubmint loses control? No one knows for sure, but it won't be good:

The long-standing assumption that the Chinese authorities know what they are doing has been shattered.

The government’s heavy-handed measures include a ban on short sales and on new share issues, as well as pressure on the 300 largest companies to buy back their own stock, and forced purchases of stocks by brokerage houses.

Many investors are effectively trapped with margin debt used to buy the stocks. These liabilities cannot be covered without selling the stocks. The longer the market remains partially frozen, the more likely it will lead to extreme stress.

David Cui, from Bank of America, said $1.2 trillion of stock holdings are being carried on margin debt. This is 34pc of the free float of the Shanghai and Shenzhen stock markets. “When the market ultimately settles at a level that can be sustained on fundamental reasons, we expect that the financial system may wobble, due to high contagion risk,” he said.

Wobbles may be putting it mildly. Stay tuned.