China Chart of the Week: How Severe is the Price Correction of Chinese Stocks?
Given the fast growth of the size of Chinese stock market in recent years, those who are watching the price reversal of Chinese stocks are voicing concerns. To put these events in perspective, this week’s chart shows the trajectory of the Shanghai Composite Index since 2005, splitting the past decade into three shorter periods. The middle period in blue (2009-12) brings home that there used to be a four-year window of relative calm and limited volatility.
The earliest period (2005-2008, shown in grey) shows that the downward swing in 2008 erased nearly all the market gains since 2006. The downhill adjustment from the 2007 peak lasted an entire year.
Finally, the red line shows the path of the index since January 2013. The correction that we are observing right now has been extremely fast – but the depth of the adjustment, seen in a wider context, is not unprecedented.
See also part 2 of our equity series on the link between prices and fundamentals.