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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

Schroders

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.

The opinions contained herein are those of the author and do not necessarily represent the house view. This document is intended to be for information purposes only. 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 Cazenove Capital does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that Cazenove Capital has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Cazenove Capital is part of the Schroder Group and a trading name of Schroder & Co. Limited 12 Moorgate, London, EC2R 6DA. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. For your security, communications may be taped and monitored. 

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