China’s mega-bear market chart revisited5 November, 2012, 16:40. Posted by Zarathustra
September macro data from China increased the market’s conviction about the recovery of the Chinese economy as well as the stock market, which have not been doing particularly well in the past 2 years, particularly the onshore Shanghai market (we will have much more to say about the economy later).
We have previously suggested that since the Chinese stock market bubble was over in 2007, the market came down and subsequently performed in a way not uncommon in other bubbles: the markets fell, and failed to reach their highs for years, if not decades. We also subsequently added that the way the Chinese economy grow, which relies on investment, will inevitably means overcapacity in the economy which crush corporate profits, which simply adds one more fundamental reason as to why Chinese equities are underperforming even though GDP growth only slows to 7.4% yoy (if you believe in the number).
The chart below, as some of the regular readers might be familiar with, shows Dow Jones Industrial Average (1929 peak), Nikkei (1989 peak), Nasdaq (2000 peak), Shanghai (2007 peak) and Hong Kong (HSCEI 2007 peak). As one can see, there is nothing particularly surprising about the poor performances of Chinese stocks over the past few years when put in such context.
Of course, this is not to say that there will not be any ups and downs, and this is not to say that there can’t be some rather significant rally from the low, especially for Shanghai. But in any case, this big picture has not changed.