Abacus | Three reasons to think twice about China’s stock slump
- Are the grisly figures from China’s stock markets the start of a long overdue correction – or a blip in a bull market that is set to run and run?
- Here’s what the smart money says
China’s stock markets took a pasting last Friday, sliding some 4 per cent in a single session as investor sentiment appeared to catch up with grim economic reality.
To many market watchers the fall made sense. To them it was irrational that the Shanghai market should have risen 26 per cent between the first week of January and the first week of March, and Shenzhen 34 per cent, even as China’s economy was slowing and the outlook for corporate earnings was darkening. They argued that Friday’s slump was long overdue, and just the start of a deeper correction.
But although this was the prevailing view, it was by no means universal. Some “smart money” international investors were quick to seize on Friday’s fall as a buying opportunity. In their eyes, the drop was just a temporary setback in a bull market that should continue to run through much of 2019.
Of course, it is hardly unusual for market players to hold diametrically opposed views.
If they did not, there wouldn’t be both buyers and sellers, and so no market at all.
Nevertheless, in this case it is worth scrutinising each perspective in a little more detail, because whichever turns out to be correct is likely to set the mood for most of the rest of the year – not just in the stock market, but in the economy at large.
