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 July 2015
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.
Important Information: This communication is marketing material. The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and 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. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can go down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. Regions/ sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this material include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change. To the extent that you are in North America, this content is issued by Schroder Investment Management North America Inc., an indirect wholly owned subsidiary of Schroders plc and SEC registered adviser providing asset management products and services to clients in the US and Canada. For all other users, this content is issued by Schroder Investment Management Limited, 1 London Wall Place, London EC2Y 5AU. Registered No. 1893220 England. Authorised and regulated by the Financial Conduct Authority.