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The Chinese stock market

The Chinese stock market – some interesting facts

Glenn Fairbairn
Director/Private Client Adviser
7 Sep 2015

With the recent hype surrounding the performance and volatility of China’s stock market, now is a good time to delve into a few interesting facts about their market:

  • Unlike most other stock markets, where investors are mostly institutional, more than 80 per cent of investors in China are small retail investors.
  • Between 2013 and mid-2015, the Shanghai Stock Exchange Composite Index rose by approximately 250 per cent. This was fuelled by a switch away from property investment following a clampdown by the government on excessive lending by banks.
  • Prior to 2010, margin lending, the borrowing to invest using shares as security, was banned in China. The China Securities Regulatory Commission approved the practice in October 2011. Between June 2014 and June 2015 the amount of margin trading in the Chinese stock market ballooned from 403 billion yuan to 2.2 trillion yuan. This further propelled their market.
  • China’s main stock index — the Shanghai Composite — dropped more than 30 per cent from mid-June to early July this year. The Shenzhen market, which is loaded with Chinese tech stocks, lost more than 40 per cent. As a whole, Chinese stocks have lost approximately US$3.9 trillion in value. 
  • Most foreigners however will not be directly affected by the crash, owning just two per cent of Chinese shares.
  • To curb the downturn, the People’s Bank of China has cut interest rates to a record low of 4.85 per cent – brokerages have committed to buy billions worth of stocks, and regulators have announced a suspension of new share listings.
  • The government’s goal now is to minimize damage to the real economy. Beijing still has policy tools it can use to support growth.

The key takeaway here is that China’s Stock Market is far less sophisticated than those in more developed countries such as the USA and Europe. Investors should not be running scared; instead this needs to be considered in context.

As we at Hewison Private Wealth have said time and time again, there is a major distinction between gambling and investing. The key to successful investment is to invest in quality assets that can withstand short term uncertainty. Trying to pick the best time to enter and exit a particular stock or sector is fraught with danger, as is responding with fear and panic in the wake of disruption.

Investors should rely on their adviser and research provider to foresee this. Investment strategies for clients of Hewison Private Wealth are a long term proposition and are designed to achieve a long term objective. We believe an effective asset allocation combats short term issues as well as disruptions to the market and traditional players. 

The information provided above is general information only and individuals should seek specialised advice from a qualified financial adviser. Please contact Hewison Private Wealth for more information.

Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email info@hewison.com.au or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.