Why China Shares Have Slumped Into A Bear Market

By Glenn Dyer | More Articles by Glenn Dyer

Another weak day for Chinese sharemarkets on Wednesday as the sell-off continues to drag the markets into bear territory.

Donald Trump’s threat to expand his tariff penalties to hundreds of billions of dollars of Chinese exports to the US and also ban any company with 25% more Chinese ownership from buying a stake in a US technology company, has investors deeply worried.

That’s despite ham-fisted attempts by senior administration members tried to down play that last threat and exposed a split.

Three days after the People’s Bank of China, the country’s central bank revealed plans next week to inject $US100 billion into the small and medium end of the economy via loans and debt to equity swaps, one key Chinese stockmarket dipped into bear territory – that’s a fall of 20% from its most recent peak – with a couple of other measures close behind.

Slowing activity in the economy is being compounded by the fall out from the Trump trade war

The Shanghai Composite slipped 1.1% yesterday to close at 2,813.18, a decline of 21.2% from its January peak and down 15 per cent for the year to date. It fell 0.5% on Tuesday to fall into bear territory.

The CSI 300 index of big companies listed in Shenzhen and Shanghai is now down 20% from its January peak.

The tech-heavy Shenzhen index entered a bear market in February while The MSCI China Index of mostly offshore listed Chinese shares has fallen 14% from its 2018 high.

The Shanghai Composite has been sold off for the past six days, the longest stretch since 2013, and losses in the stock market have totalled $US1.8 trillion ($A2.4 trillion) since January, according to Bloomberg estimates.

The Financial Times reported that “The move by the People’s Bank of China was seen by analysts as an attempt to calm market concerns, which along with US-China tensions were exacerbated by weak data and a cut in the growth outlook.

“The deterioration in US-Sino trade relations has sparked big falls on Wall Street and in Shanghai, notably in the technology and industrials sectors, as investors worry that companies with complex global supply chains are exposed."

The fall in China has outstripped what is a weak performance on the ASX for the ASX 200 is down 2.2% so far this year – a performance improved by the 3% rise so far in June.

Local investors have been warning what is happening on the Chinese markets in the past year or so and have taken their leads exclusively from the US.

The appearance of a bear market in China might be a reason to resume keeping a close eye on what is happening with more Chinese stocks included in global market indexes.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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