The Chinese stock market, as represented by the Shanghai Composite, has doubled from it’s low this year and then peaked out in mid-July. Since it’s high last month, it has given back about 20%, which is the standard measurement of what constitutes a Bear Market.
I am coining the phrase Panda Bear Market to describe this latest turn of events because I think the consequences could be more far-reaching and significant than many suspect.
The chart below comes from Bespoke Investment Group:
On this site, we talked about the lunacy of the IPO market in China and about all the superlatives and record-breaking which I felt were eerily reminiscent of our own dot com boom and bust 9 years ago.
With no boots on the ground in mainland China, it would be difficult for me to determine whether or not the Chinese middle class speculators have learned their lesson just yet, but my gut tells me that the answer is no.
There was a one week period in mid-july, coinciding perfectly with the peak of the Shanghai Composite, that middle class Chinese people opened up more than half a million brokerage accounts. In one week! I’ll let that sink in for a moment.
If in fact the Chinese are looking squarely into the eyes of a Panda Bear Market, then the global aiders and abettors of China’s growth machine may also see their shares take a break. As of this writing, all the oil, steel and copper names on my screen are indicating lower.
The question for US investors is whether or not the fledgling signs of a turn domestically will be enough to overcome the Panda. Are our banks, homebuilders, REITs and select retailer stocks up to the challenge? Are our chip and software names up to it?
The action this week may offer the answer.
Full Disclosure: Nothing on this site should be interpreted as investment advice or an invitation to buy or sell any securities. Please see my Terms & Conditions page for a full disclaimer.