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.
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.
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.
This communication is marketing material. The views and opinions contained herein are those of the named author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds.
This document is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroder Investment Management Ltd (Schroders) does not warrant its completeness or accuracy.
The data has been sourced by Schroders and should be independently verified before further publication or use. No responsibility can be accepted for error of fact or opinion. This does not exclude or restrict any duty or liability that Schroders has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions.
Past Performance is not a guide to future performance. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested. Exchange rate changes may cause the value of any overseas investments to rise or fall.
Any sectors, securities, regions or countries shown above are for illustrative purposes only and are not to be considered a recommendation to buy or sell.
The forecasts included should not be relied upon, are not guaranteed and are provided only as at the date of issue. Our forecasts are based on our own assumptions which may change. Forecasts and assumptions may be affected by external economic or other factors.
Issued by Schroder Unit Trusts Limited, 31 Gresham Street, London, EC2V 7QA. Registered Number 4191730 England. Authorised and regulated by the Financial Conduct Authority.