China has no doubt experienced a (panda) bear market this week, but will it stabilise in the near future?
Over the past few weeks, the Shanghai Composite has been on everyone’s minds. It swung from a loss of 0.7 percent to a 5.3 percent gain in the last hour of trading on Thursday, ending a rout that erased more than $5 trillion of value since mid-June (1). Whereas just on Wednesday, the Wall Street Journal reported that “the slowdown deepening this year is part of a bumpy transition away from an era when smokestack industries, huge exports and massive infrastructure spending—underpinned by trillions in state-backed debt—powered China’s seemingly unstoppable rise. Today, debt has swelled to more than twice the size of the economy, and some of those industries, such as construction and steel, are reeling.” (2)
What will happen next? What is causing this instability? The problem may well relate to a lack of weighing the risks involved in the stock market. Understanding how to be reasonably balanced in order to make well informed decisions is an important factor to consider. In addition to individuals weighing risks involved in their own participation, it is also important to remember China’s place in the world and its continuously growing strength.
Australia’s Treasurer Joe Hockey has been cited by The Australian as saying that investors should not forget the underlying strength of the Chinese economy nor underestimate Beijing’s determination to keep it growing (4).
“The resources the Chinese government can mobilize are more than any other country in the world,” said Li Xunlei, a vice president at Haitong Securities Co., a publicly-trade brokerage in China (5).
China is philosophically well equipped to pursue a balanced path to stability, as the yin yang symbol so well illustrates. A yin yang analysis could be applied to the bull and bear relationship that is occurring. The market can swing into yin or yang at any point and it is important to not overestimate the power of the bull but instead to spread your shares, invest your money strategically, and realise that the bear will soon move on.
With the wisdom of Confucius never far from consultation, China can resume its bright economic future. What would Confucius say about the stock market? Tell us your thoughts by leaving a comment!
For an understanding of the Chinese stock market – (including the reasoning behind the colour red as a favourable colour) check out this video.