Soaring Chinese stocks swoon

After leaping 140% in just one year, rampant Chinese stocks have suffered their worst five-day period since 2008.


China has urged investors not to panic

After a 140% jump in a year, Chinese stocks looked ripe for a correction, defined as a fall of at least 10%. Last week, they got one, suffering their worst five-day period since 2008. The Shanghai Composite index slumped by 13% during last week, and 6.5% last Friday alone. China's state-backed press saw fit to urge retail investors not to panic. Volatility is normal in equity markets and "all participants should be aware of this", said the Securities Times.

What the commentators said

Investors have also been anticipating a surge in initial public offerings, which would boost the supply of shares in the market. However, this bump seems unlikely to mark the end of the bull market, reckoned BlackRock. "Liquidity and central bank action will probably continue to drive stocks."

But perhaps not as much as they have so far, said The Wall Street Journal's Alex Frangos. The government has loosened monetary policy in recent months to prop up growth, and this is starting to have an impact.

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The property market has finally "stopped getting much worse" and other indicators, such as industrial production, have "bounced off lows". The labour market also appears stable. Granted, this is a "tepid" recovery, but the pace of monetary easing could ease from here, weakening a tailwind for stocks.

Even so, with more easing on the cards, and the government keen to help debt-soaked state enterprises raise money from the equity market, "we think it would be premature to call an end to this rally", said HSBC's Steve Sun. And longer term there's scope for further gains as China's consumers begin flexing their muscles, as MoneyWeek pointed out last week. As the Securities Times put it, "the bullish market logic has not changed yet".

Andrew Van Sickle

Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.