The Chinese stock market

The Chinese stock market is relatively unmatured comparing with the stock markets in those developed economies, such as the American stock markets and the UK stock markets. As I discussed yesterday, the Chinese industries are actually performing well with high profit growth rates. In general, the stock market co-moves with the economy that when the economy is performing well, the stock market will also perform well. However, in China, it seems there is a contradiction.

Such phenomena could happen in the reality with sensible reasons. Firstly, when the listed companies are already overvalued in general, it is possible to see that the market correction pulls down the values of these companies even if they are making good profits. Secondly, it is possible to see a company is performing well but does not pay good contributions to its investors, then investors may decide not to hold this company's assets any more, then sell-off will drag the price down. Thirdly, when the economy is performing well but facing increasing uncertainties in the near future, then investors could become panic and rush to sell their assets during the good period which they fear will end soon. Such panic will result in a steep market fall. This is the most that is happening to the Chinese stock market right now. Investors are fearing that the ongoing trade war between the US and China will deeply damage the two economies and result countless firms in the situation of bankruptcy. However, the other player in this trade war, the US, did not experience such market fall, of course, it did experience some sharp market fall over the past few days, but such market fall has not lasted as long as the Chinese market fall has. It could imply that investors have more confidence in the US economy than they have in the Chinese economy and more investors believe that the US will eventually win the trade war.

Of course, other factors also contribute to the contradiction between the economic performance and the market performance in China. Because the market fall is mainly contributed by the increasing uncertainties caused by the ongoing trade war, the market fall seems to continue for more time until investors can have a much clearer picture about the future of the Chinese economic performance during the trade war.