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60 seconds with Marcus Brookes on the end of China’s longest bull market

The Chinese stockmarket has been hit by a significant correction after a meteoric rise. Marcus Brookes, Head of Multi-Manager, takes a look at what triggered the gains and the subsequent weakness.

14/07/2015

Marcus Brookes

Marcus Brookes

Head of Multi-Manager

The rise and fall of Chinese shares

China's stockmarket has been hit by significant volatility, but the preceding bull market phase, during which Chinese shares rose around 150% over 935 days, was around five times longer than the average in Chinese history.

The bull market looks like it has come to an end. China's stockmarket has now fallen around 20%, and is now considered to be in bear market territory.

What has happened?

Retail investors were encouraged to invest in the stockmarket by the Chinese government which had been trying to wean them off Chinese property. Take trading account openings for example:

  • In 2012 and 2013 there were around 10 million account openings across the two years.
  • In 2014 again around 10 million.
  • In the first five months of 2015 alone, another 10 million.

Investors were also often using debt to finance their investments.

Steep valuations

We think the reason why retail investors were being encouraged to do this is partly to do with valuations, which were cheap.

Chinese valuations are now looking pretty expensive, around four times pricier than the US market, where stock valuations also look relatively high.

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