State of the China Stock Market: BOOM or BUST?



Many of you have heard us talk about the euphoric rise and the dramatic fall in the China Stock Market in the past year. How did this all happen and what is the current state of the China Stock Market? We’ve gotten many emails from you that I thought we should put a blog post together and explain what’s going on. First off, I’m going to talk about how the state of the China Market relates to when I first started trading in 1999. It was the late 90’s and the US Stock Market, particularly the technology sector was SUPER HOT. It didn’t matter what technology stock that you bought at that time because all of them went up. I remember buying my first speculative tech stock and it tripled in value within a month. Experts were touting this as the new technology economy and I was working in the tech sector at that time. From my stock picking successes, I thought I was a stock market genius including all the mom and pop investors who were also invested in the stock market at that time. Well you know what happened after that. Well I see similarities in the China Markets. Late last year, I was in Asia and all I could hear was how much money investors were making. I had friends tell me that they made 30-50% returns within weeks or sometimes days and it was so easy. The big reason was the Chinese Government was encouraging their own citizens to go out and buy stocks. Their economy and real estate market was slowing down and they thought this would help build wealth within their country. The government was trying to encourage economic growth through not relying on manufacturing and real estate but in the digital and financial economy. Well, it worked for awhile as billionaires were minted at a rapid pace but eventually, it created a bubble and it burst. So what is going to happen next?

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To answer this question, let’s take a look at the Nasdaq Index from 1998 to 2015.


You can see the rapid rise and fall from 1998 to 2002. From the peak in 2000, it took 15 YEARS before we saw the high reached again in 2015.

Now let’s take a look at the Shanghai Index from 2006 to 2015.


You saw the rapid rise and fall from 2006 to 2009. Then, you saw the rapid rise and fall in 2014-2015. Based on the chart, it looks like we have more downside to go before we see any potential rise.

Another article that we found interesting was that 80% of the trading volume in the China Markets were driven by amateur investors/traders.  This doesn’t bode for the strength of their financial markets. You can read the article by clicking on the link below.

If you’re watching the China Markets, look for opportunities to SHORT (Bet Against) the markets. If you don’t want to play with margin, you can buy inverse ETF’s that bet towards the fall of the China Market. Two Inverse ETF’s you can consider are Direxion Daily CSI 300 China A Share Bear 1X Shares (CHAD) and ProShares Short FTSE China 50 (YXI).

Playing the China Stock Market is risky but if you can time it well, you can reap the rewards.

Mike Ser

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