China's Worst Bear Market

From its peak on October 16th to its low last Friday, China's Shanghai Composite was down 49.2%. This decline is the worst bear market for Chinese equities since at least 1995 (the index began in 1990, but we only have price data back to 1995).

As shown in the table of bull and bear markets below, the average Shanghai bear sees a decline of 32.91% and lasts 166 calendar days. The bull market that preceded the current bear was also the biggest rally for the index since 1995 (+502%). The more they go up, the harder they fall. And just in time for the Olympics.

click to enlarge

Comments

[Urbane Gori...:]

Ohhhh Yeah! That Proshares Ultra FXI sure hurt me badly!

jegan ;-)

2008 Apr 22 11:20 AM

[SANDS:]

IT WILL COME BACK! DO NOT'T GIVE UP ON CHINA.

2008 Apr 22 12:23 PM

[User 143167:]

This ferocious bear market in China doesn't reflect the economic fundamentals in the Middle Kingdom, but all about the fact that TRILLIONS of formerly non floating shares (at cost of basically ZERO) can now be taken profits on the market at whatever price starting last winter. And make it even WORSE, there are still TRILLIONS TO COME!
Any markets will crash like this if it becomes a cheating machine.

2008 Apr 22 12:47 PM

[J.D:]

It's already a cheating machine and always has been.

The companies are just government operations and government held stocks won't float because there is no plan to privatize. New regs ensure government maintains control, they're not to protect the stock market.

2008 Apr 22 07:47 PM

[Colin Chen:]

the obligated holding periods for many of the A-shares are ending, leading to large number of floating securities being loaded off. The chinese government will likely maintain control of the many operations, but its hard to deny the fact that there are more shares in the public hands than ever before. I agree with user that this is what is generating the downward pressure on the chinese stock market.

Adding to the fire is the allowance of some chinese domestic investors to seek better investment opportunities abroad (hong kong in particular) through the QDII program. Not even the most nationalistic chinese would place his money in a rigged opaque domestic market.

2008 Apr 22 09:16 PM

[sherwin:]

The current bear market is a very welcome sight to any value investor. The golden rule in investing is to go against the crowd...so it's definitely a good sign when the so-called experts and the majority are becoming overly negative on China.

Some market watchers just can't wait to see China fall, so they can say "I told you so..."...just because they missed on the huge pay-offs in the last bull run.

Many forget that China is still an improving country (a developing country in fact), and that the Chinese are becoming smarter, better educated, competitive, and productive by the day. That potential and room for growth is something that not many countries can even start to talk about.

2008 Apr 23 01:03 AM

[James Lewis:]

Anyone that has studied dow theory understands exactly what has happend here.

This is classic Pyramid scheme, the big sellers currently are the corrupt government officials anyway. The buyers and vicitms are the naive chinese and the corporations who thought they were fund managers.

This is eaxcalty what happend in the nasdaq bubble bursting in 2000. You see the bubble does not burst until those that pumped it up get out. The unlocking period is here....

I predicted the bottom would be at 3000. And planned to buy.
But I have not seen a decent enough capitualtion. The market is very volatile and moves in big swings and because of this I am not sure the bottom was made at 3000.

Long term players this is surely good time to buy your stockpicks.
There are stocks going cheap in some places.
However if you are not looking at fundamentals and are a technical trader, if you wait I think you will get an even better opportunity.

In temrs of people making commens about China, unless you have lived on Mainland China for more than a couple of years and speak chinese it is very hard for you to even come close to understanding he chinese abnd China.

Buy property cause thats where all the ill gained money is going.

james

2008 Apr 23 02:22 AM

[halo:]

ok it's fallen heavily, but if you have view that long term it will go up, what's the best vehicle for tracking the market - I only see a few ETFs that are v limited or funds with high costs??

2008 Apr 23 04:05 AM

[Nepzone:]

your comments are not accurate, there was a greater bull run and bear run from 1991 to 1993, check your charts!

2008 Apr 23 04:06 AM

[NOWHEREMAN:]

The current correction is over...The Chinese Government has ordered their Mutual Funds to buy shares.

If you believe that the US and Europe will avoid a deep recession, then Chinese stocks will soar again probably to 9,000

2008 Apr 23 08:34 AM

[rlirph:]

I agree with James V, too many posters make half correct comments which I think is a disservice to the community. Some posters are still confused that there are indeed two Chinese stock markets for the mainland stocks - the mainland A shares and the Hong Kong H shares. The A shares and H shares are identical cousins but are traded at different market values.

When you buy FXI or Proshare Ultra you are buying or shorting the H shares. Again the same company stock can go in different direction on the same day. If you do not know what you are buying you are going to hurt yourself.

The other correction is that although many big enterprises are government owned (State Owned Enterprises) there are many more private enterprises which have come into the market. Those shares are not in the hands of corrupt government officials.

In summary China stock market is an emerging market. Just like Hong Kong in the 1970's we used to laugh at how immature and how volatile the market was. But who has the last laugh now...

For those who does not know Hong Kong market I bailed out the market in 1973 when the Hang Seng Index dropped to 153. Now it is over 25,000. China will be similar in a lot way. The market is full of great potential but there is a lot of volatility and hiccups along the way.

The recent pullback provides a great opportunity for people to get back in. I was in when Shanghai Index was 1800 and got out when it fell to 4800 after reaching 6100. Now I am very tempting to get back in... I am not sure if the bottom is 3000 or 1800.

If your goal is to make money where else do you have this opportunity to triple your money in two years?

2008 Apr 23 08:42 AM

[J.D:]

There's no big government selling. China's not privatizing companies through the stock market. Check your facts. Any major selling is just SOE cross holdings. The Socialist Market Economy is government owned, sorry if you were misled.

2008 Apr 23 08:44 AM

[huangthomas:]

Just released in Chinese if you read Chinese. The stamp tax of stock transaction will be lowered from 3 to 1% on April 24. Two days ago, Chinese SEC clamp down on floating more shares onto the market. Any large block share owners (DaFei) require SEC approval if they are going to float more than 1% of the company stocks. Shanghai market seems to be responding and the Shanghai stock index bounce back 6% from 3,094.33, which could be near term bottom. American market is also responding to the news this morning.

2008 Apr 23 11:49 AM

[huangthomas:]

Information on Stamp tax reduction from 3 to 1%, please go to ce.cn (in Chinese). This is about the right time to revitalize Shanghai market to celebrate Beijing Olympic game on August 8.

2008 Apr 23 11:57 AM

[J.B.:]

If the Chinese market is so bad, then why is FXP (the double short to FXI.......or the twice the opposite of FXI) doing so poorly and is on a downtrend? Any insight would be greatly appreciated

2008 Apr 23 06:58 PM

[huangthomas:]

FXI and FXP are plays on Hong kong H-share market. H-share market does not trend with Shanghai A-share market, dropped 50% from last year's high to now. Chinese markets have at least 3 markets: Chinese A-share market (also B-share market), Hong kong H-share market, and New York ADR market. Valuations of share price are different, with Hong kong market being closer to New York market. FXI bounced back strongly today and holders of FXP can really get hurt.

2008 Apr 23 08:42 PM

[huangthomas:]

April 24, the first day of lowering of stamp tax, in the first 10 min. of trading, Shanghai stock exchange index jump 6.85% to 3,494. It is a policy-driven market and government's intention is clear. Don't short Chinese market until after Olympic game in August.

2008 Apr 23 09:46 PM