China is no stranger to stock market bubbles

The on-going “excitement” about China and stock market bubbles has everyone in a tizzy. A little over a month ago, I was surprised to notice that the Shanghai composite index had doubled within a year!

Sure enough, Chinese stocks have corrected dramatically over the last few days, but one year returns still stand at close to 90%, compared to much more modest returns for the Nifty (India), S&P500 (U.S) and Dax (Germany)
The Calm Investor | China Stocks Bubble

Zooming out five years, adds a little perspective where Chinese stocks have underperformed the other three indices over four of the last five years. US and German stocks have performed significantly better than China over a five year timeframe.

The Calm Investor | China Stock Bubble

Zoom out even further and the picture changes again. Over a ten year timeline, Chinese stocks have done much better than US, Germany and India by a fair margin. At the same time, they also have been much more volatile and prone to sharp run-ups in price followed by equally abrupt declines.

The Calm Investor | China Stock Bubble

The on-going turmoil in Chinese stocks seems to be par for the course for this highly distorted stock market. It’s impact on Indian stocks? Your guess is as good as mine.

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