When it comes to stock markets, China’s sure marches to the beat of its own drum. The Shanghai Composite gained 145% in the past year, compared to about 7% for the S&P 500. Now, though, things may be unraveling in China — and given what happened there just a few years ago, it is not likely to be pretty. In the chart below, we can see the recent nearly vertical rise in the Chinese market after a slow, multiyear drift lower. The same thing happened at the start of this century. It was as if sellers… Read More
When it comes to stock markets, China’s sure marches to the beat of its own drum. The Shanghai Composite gained 145% in the past year, compared to about 7% for the S&P 500. Now, though, things may be unraveling in China — and given what happened there just a few years ago, it is not likely to be pretty. In the chart below, we can see the recent nearly vertical rise in the Chinese market after a slow, multiyear drift lower. The same thing happened at the start of this century. It was as if sellers just gave up and buyers pushed valuations to impossible levels. Chinese stocks peaked in 2007 and then fell off a cliff when the magic of the Chinese economy faded, taking commodity markets down with them. Experience shows that when a market trend continually accelerates, affectionately called “going parabolic,” the gain is often mirrored by the decline on the other side. Most of the time, the accelerated rally is erased completely. If that happens again now, the resulting decline could be on the order of 55% to 60% from current levels — devastating by any definition. Domestic investors cannot easily short… Read More