Falls overnight on the Chinese stock market are worrying investors. It’s the biggest one-day fall since February 2007 and before that, to find a worse day you have to go right back to 1997.
After this latest fall, the Shanghai Composite Index is now 28% lower than its peak which it hit on 12th June 2015.
Hargreaves Lansdown Senior Analyst Laith Khalaf said: “The Chinese stock market has suffered one of its blackest days ever, vividly demonstrating that what goes up fast tends to come down at a similar pace.
“While this was one of worst days ever for Chinese stocks, it is important to maintain some measure of perspective. Despite the recent sell-off, the Shanghai index is still 11% higher than when it started the year.
“This tells us how far the Chinese stock market has come in such a little space of time. On the back of such stellar performance it is natural for the market to come back down to earth.
“In the near future we can expect more thrills and spills from the Chinese stock market. The bubble that has built up over the last year from domestic investors trading on margin finance may yet have further to unwind, and the government’s interventionist response to falling stock prices will have troubled many international investors.”
However, looking ahead, Khalaf is more optimistic: “The long term picture is more encouraging. While the exact figures are disputed, China’s economy is still growing at a higher rate than western economies, a positive backdrop for many of the country’s companies. Meanwhile the market appears to be gradually opening up to foreign investment, even if the recent trading suspensions are a retrograde step.
“Most investors looking to gain exposure to China should probably do so through a broader Asia Pacific fund, however those with strong stomachs and already well-diversified portfolios might consider investing in a specialist China fund.”
