Hi there! Thank you for the opportunity to help you with your question!
It is very complicated to try to explain the market in simple terms. I'm answering this is an "Easy Question" but it is definitely not! :)
The Chinese stock market is a relatively young, and not so "mature" as the United States stock market. What this means is that the valuation of companies (that is, the value of the stocks) are not necessarily backed up by results. The main reason the value of the Chinese stock market has gone up in past years is a great influx from the "Average" person in China. Because of this large influx of cash into the market, valuations went up (because usually large investments mean confidence in the market, which should be based on results!) But if every person is investing their life savings into the stock market, then it is not really true that the company has all that value! This scenario is unsustainable, and eventually, when results started to appear, we see that the companies are over-valued. And when you have unexperienced investors, whenever they see a sharp decrease in value, there comes along panic. Since this is the person's life savings, he/she wants to get out as soon as possible, to at least recover (or not lose) their initial investment. And to some extent, the market tends to go back to the actual valuation of things. This is (partly) why the stock market fell by such a sharp amount (but it had already been going down for a few days before, and after). In addition, we have in China a government that gets very involved with economic policies, there was currency devaluation, and other economic measures, and suspending trades. These measures are not necessarily good for a market, and they usually cause more panic than they solve.
Now, the other stock markets are observing China, because China is the second largest economy in the world. Stock markets in general hate uncertainty, and when they see valuation changes of around 30% in a week, for the second biggest economy, there will necessarily be ripples. The US market at the moment is concerned with other situations, especially the interest rate hike that can happen as early as September by the Feds. Even though the US economy has been doing relatively well this year, there are still many companies that rely on factories and production that comes from China. When the market in China suffers such a big hit, then there comes a lot of uncertainty about how the American companies will react to it, what will be the effect of that crisis on, say, the production of iPhones (which Tim Cook, the CEO of Apple made a note saying they are doing well despite everything.) In any case, investors react, and valuations usually fall in times of uncertainty.
This is basically a tiny bit of the iceberg. There is no half page answer that will explain, but I hope this gave you some understanding in "layman's speak". There are many resources, many things to be read, so don't rely just on this answer, but try to find out more. In any case, I just hope this helps!Please let me know if you need any clarification. Always glad to help!
this is completely my own words. But I really think that the most important thing is for you to take out of here. I am trying to explain to someone who wants to understand, not just to get a grade.
As we probably see from the latest news on TV, the economy of the stock market crashed and affects very hard China and the United States. Economic analyst and specialist are trying to explain the global panic. As China plays a big role in the global economy, even if their economic decisions are not the best when its stock crashed a lot of countries associated with China financially are affected including the companies who are overvalued and investor that panic every time they see their investment in risk to decrease. So, the stock market goes more down than before. The Chinese stock market is young, compares to the United States stock market. As for the Canadian market of Toronto stock exchange that has been hurt by that, they lost on their money value even if they are not very associated with China as New York. We can see the consequences on different area in the text on CBCNews business: ``TSX, Dow sink lower after China sparks huge stock selloff: Canadian dollar drops to 8 years low of 75 cents US. Dow Jones loses 1,000 points at open before recovering. Oil loses another $2 to trade below $38 a barrel. Actually, on ‘’www.marketwatch.com’’, the stock market seems too go well but some of them are close.
and now ?
As we probably see from the latest news on TV, the Chinese stock market suffered serious loses, which directly effects other countries, such as the United States. Economic analysts and specialists are trying to explain the global panic. China plays a big role in the global economy, since many countries rely on China for manufacturing of goods among others. Therefore, when there is a panic situation in China, this causes uncertainty in the global market. In China, there was a large inflow of capital from unexperienced people, so when the stock market began devaluating, there was panic, which caused it to go down even further. The Chinese stock market is young, compared to the United States stock market. As for the Canadian market of Toronto stock exchange that has been hurt by that, they lost on their money value even if they are not very associated with China as New York. We can see the consequences on different area in the text on CBCNews business: ``TSX, Dow sink lower after China sparks huge stock selloff: Canadian dollar drops to 8 years low of 75 cents US. Dow Jones loses 1,000 points at open before recovering. Oil loses another $2 to trade below $38 a barrel. Actually, on ‘’www.marketwatch.com’’, the stock market seems to go well but some of them are close.
I thought I had sent it already, I'm sorry. This is a review of what you wrote, I tried to fix grammar and add some more important detail. Hope it helps!
Typo: I wrote "directly effects", it should be "directly affects". In the first sentence
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