Last year millions of Chinese “novice speculators” rushed into the stock market with tens of thousands of new accounts being created on the daily basis. We have covered that on this blog before.
It appears that these same speculators can’t get out of the market fast enough today.
Yang Lihua was one of millions of small investors Beijing encouraged to join a stock-buying frenzy last year. But the Shanghai newspaper editor sold after prices collapsed in June and she vowed never to return. In November, Yang was coaxed back in after a multibillion-dollar government intervention stabilized prices. Then on Monday, the benchmark Shanghai Composite Index began the new year by plunging nearly 7 percent. “I do not want to invest anymore,” said Yang, who has lost 350,000 yuan ($55,000) in total. “This is just too miserable. It hurts, emotionally, a lot.”
In October and November of 2015 a number of prominent analysts have proclaimed that China’s correction was over. I did not share in their enthusiasm. Instead, I showed you this chart (3-year Chinese Large Cap ETF (FXI)) and asked……
Does it look like the worst is behind us?
Well, one can argue that the bottom has been put in place and that the Chinese market is now ready to stage a come back rally. Yet, I can just as easily argue that we are in the early stages of a more severe decline. Think 2000-2002 on the Nasdaq. There are no technical confirmations either way. At least not yet. As a result, we have to rely on the fundamentals. And the picture there is kind of scary.
- China’s factory growth weakens, retail sales stay strong
- Just How Big Is China’s Bubble? This Will Blow Your Mind
- Is China About To Collapse – Drag Us All Down
- Marc Faber Laughs At China, IMF/FED & The Stock Market Stupidity
In other words, it is kind of presumptuous to assume that China has somehow bottomed. If anything, their fundamentals continue to deteriorate. In July of last year I have suggested the following China’s Nasdaq 2000 Crash Is Set For A Bounce And while I was a few weeks early, we did get that bounce. A bounce that might now be over.
And that appears to be the case here as China is now approaching August’s lows. And should the Chinese market break below key technical support levels, it has quite a bit of downside ahead. An unfortunate development that most investors, here or there, are ill prepared for.
