Pete Wargent blogspot

CEO AllenWargent Property Buyers, & WargentAdvisory (institutional). 6 x finance author.

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Wednesday, 23 December 2015

China stocks - the year that was

Bubble & burst

If you had predicted that China stocks would outperform other prominent indices to rise by about 13 per cent in 2015, then so it has been.

Yet it has been quite some rollercoaster year for Chinese stocks, with a huge run-up in valuations which had become disconnected from all fundamentals, an alarming crash in the middle of the year, a slew of "interventionary" measures, and then a tentative recovery.

After the peak of the bubble on June 11, the market lost close to a third of its value within a month as newly leveraged investors were hit with margin calls, the index falling by 30 per cent by July 8.

After a few preliminary interventionary measures, the index crashed again by more than 8 per cent on August 24, and backed that up with another similar decline of a similar magnitude the following day.

It is easy enough to smirk about the "tinned food" and "find a safe place with loved ones" recommendations now, but global investors were certainly spooked at the time, reflected in the uneasy reaction of world markets. 

Following a couple of dozen government measures including putting a stop to IPOs, the banning of short selling, restrictions on ownership and selling, suspensions of trading, and a whole raft of other actions, the crash was eventually arrested.

China stocks may be looking set to finish the year up about 13 per cent, but it's been anything but plain sailing this year.