China’s Shanghai Composite Index plunged during most of 2008, bottoming at the end of October after a 68% loss. You could be excused for being unaware of the slow-moving crash at the time given all the hype about the summer Olympics in Beijing and the building excitement about investing in China as an “escape” from slowing markets in the U.S. and Europe.
Fast forward to today’s recovery from the financial panic, and the buzz about China is as heated as ever. Yet, the Shanghai Composite Index peaked in July and has gone nowhere ever since. Meanwhile, the S&P 500 has soared 23%. If past is prologue in this case, we should expect that many companies depending on China for growing profits will soon hit a brick wall. Note that China has made efforts to slow down its overheated real estate market while at the same time keeping loose monetary policies for the rest of its economy. The good news is that at least the index is not crashing (and the optimists in the crowd will insist that the current period represents consolidation before the next big leg upward).
Source: CNBC charts
Be careful out there!
Full disclosure: none