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On a recent weekday afternoon, the sun was shining and it was easy to see how the market had turned around.
The bull market in China had finally burst.
Its rally since then, however, has been so spectacular that even the markets’ biggest names are starting to admit that it may not be so hot after all.
This week, for instance, the Shanghai Composite Index (SCI) gained 5.9 per cent on Monday, beating its previous record.
Meanwhile, the Tokyo Stock Exchange (TSE) lost 1.6 per cent, while the Shenzhen Composite Index dropped 0.4 per cent.
As you can see, the biggest names have been forced to admit defeat.
Investors were beginning to realise that China’s economic growth had been a total flop.
So what was to be done?
One way of looking at the stock market’s performance would be to say that China had managed to push itself out of the low-growth phase.
That means the stock markets are now moving towards a much higher-growth, low-inflation phase, where the market’s returns will continue to rise.
In a sense, that means that there is little risk that the market will crash.
Instead, investors will have to be patient, and take their time.
At this stage, there is no question that China is still a major global economy.
It has about 300m people, with about 40 per cent of them living in the capital Beijing.
Even so, it has had to grapple with a massive debt burden and a sluggish economy.
Inflation is currently running at 6 per cent – far above the eurozone average of 1.8 per cent and the US’ 4.6.
However, that’s no guarantee that China will avoid another crash.
There’s no question China is very sensitive to any shocks, so it is not surprising that there have been some bouts of volatility in recent months.
There are also fears that China may be slowing down in order to attract foreign capital.
To the extent that it has allowed its banks to grow, it will be hard to turn them into safe haven assets if the economy falters.
But that does not mean that the stock-market bubble will burst.
In fact, if it does, the market may still hold value for a long time.
China is not a basket case.
Its economy is one of the most dynamic in the world, with the average annual growth rate at about 4 per cent in the past five years.
If it can keep its economy from contracting further, the stock prices could increase in value.
While it’s a huge risk, China’s stock markets have been very resilient in the face of such a dramatic fall.
“The markets have had a very good time,” said Paul Fassbender, head of global investment strategy at investment research firm Morningstar.
And he believes that Chinese stocks will continue their uptrend for the foreseeable future.
He said: “They will see their gains continue to outpace the rest of the world’s, and the fact that China has such a large, robust economy means that it’s unlikely that the markets will be in trouble for a very long time.”
He added: “I think the market is very, very resilient, and I don’t think we will see another big market crash.”
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