The Last Time This Happened, Chinese Stocks Crashed

Chinese stocks are the most expensive relative to bonds in almost six years. For the first time since June 2009, Bloomberg notes, the earnings yield on the Shanghai Composite Index has dropped below the yield on top-rated corporate debt... and just like in now, stocks rallied 100% in the preceding year before plunging over 20% in the next month, and further still in the ensuing months. Already we are seeing Chinese stocks faltering - with a disappointying post-rate-cut move - which leads on analysts to note, "the market will enter a correction phase, and it will be very volatile," and comments by officials have raised concerns that PBOC will "quickly erode its credibility."



As Bloomberg reports,

The official People’s Daily said on its website Monday the bull market doesn’t just mean one-way gains, adding that the many people who have bought stocks using borrowed money may be hurt by a small correction.


Last week’s pullback doesn’t mark the end of the rally and could instead help the market enter a “slow bull” mode advocated by regulators, the official Xinhua News Agency said in a commentary on its website.


“The regulator must remember its primary role is to regulate and monitor market risks and it is not a strategist,” Hong said. “Its frequent switches between bullish when the market crashes and cautious when the market surges will quickly erode its credibility.”

*  *  *