China stock collapse: Five things you need to know about 'Black Monday'

The market plummeted this week, losing all the gains made for the year

China's stock market plummeted on 'Black Monday' (Rex Features)

What's happening in China?

In short, there was a bubble and now it's burst – big time. China's stock market had soared 150 per cent in the 12 months to mid-June. Investors piled into a rising market with many borrowing heavily to do so. The economy grew but it was debt-fuelled growth – and that's bad.

When the economy started to slow people became concerned shares were overvalued. As a result the market started to fall over recent weeks until it plummeted on "Black Monday", losing all the gains made for the year.

China's really far away. Why does it matter?

Well, it's the world's second-largest economy although it's still what's known as an "emerging market". What's going on has affected the currencies of other emerging Asian economies as well as stock markets around the world.

Will this affect my ISA and other investments?

Yes, but don't panic. If you invest in shares and funds through your ISA, some of these could be in China. The falls come after a six-year bull (rising) market so those who've been invested for several years will still, generally, be sitting on a profit, albeit a smaller one than a few months ago. The message from experts is "keep calm". Panic selling into a falling market can be a costly mistake.

What about my pension?

Like ISAs, your company or person pension is likely to be partly invested in Asia. As a result it will have decreased in value in recent days. But this doesn't really matter if you're not planning to retire any time soon as there is plenty of time for the markets to recover.

Those already retired and withdrawing cash from their pension, via drawdown, may want to take advice before doing to at the moment.

Are there any upsides?

Yes. The turmoil means that an interest rate hike is likely to be further away now with the forecast switching from next summer to next autumn. So those borrowers on variable rate mortgages can sleep easy for a while longer.

The price of oil is falling too. If this continues it could mean cheaper flights and petrol.