China’s stock market has fallen sharply over the past month, and I want to describe what this bear market looks like from a historical perspective.
Prior to the current drop, there were three bear markets over the past 15 years:
2001-2005: 55% drop
2007-2008: 73% drop
2009-2013: 47% drop
Current drop: 34%
The drops of 2001-2005 and 2009-2013 subdivided into multiple waves, but the deeper 2007-2008 drop had no obvious subdivision. The market’s history suggests that the current drop has further to go. The market is not likely to bottom until we get either a 50% drop with subdivision, or a 70+ percent drop without subdivision. The former case involves a bottom around 2500, whereas the latter case involves a bottom around 1400.
One thing worth noting is that, despite the huge drops in the stock market, China has not had a year-on-year GDP decline since 1988, based on data from tradingeconomics.com