China investors with longer-term horizons may want to refrain from rushing in to buy this week’s bounce, as history shows the real bottom may still be a way off.
Encouraging commitments from the nation’s financial officials to bolster market stability have driven the Hang Seng Tech Index up 30% in two days, while the mainland’s CSI 300 Index has gained about 7%. Based on recent experience, some traders are waiting to see whether or not this will be just a short-lived rebound.
The events of the past couple of days bring back memories of the bumpy road out of a bear market a bit more than three years ago, when confidence was shattered due by deleveraging and the US-China trade rift.
Mirroring the market-soothing talk from regulators this week, coordinated verbal intervention in October 2018 gave the market a lift. That rally then got a second leg up from a surprise announcement by President Xi Jinping in November of a new trading venue that would allow relaxed listing requirements.
Profit-taking kicked in soon after, however, and the Shanghai Composite eventually reached its nadir in early 2019, a few points lower than its bottom a few months earlier.
See also: China tightens securities lending rule to support stock market
Photo by Hanny Naibaho on Unsplash
