What the Man Who Predicted the China Selloff Thinks Will Happen Next

Have China's Stocks Hit Bottom?
  • DeMark predicts a 4.5% advance in the Shanghai Composite Index
  • Chinese policy makers' intervention is delaying stock retreat

Tom DeMark, who predicted last month’s selloff in Chinese stocks, said the Shanghai Composite Index may rise more than 4 percent before resuming its decline.

The benchmark gauge could climb to 3,390, staging a temporary rebound similar to its rally in July, according to DeMark, founder of DeMark Analytics LLC. The Hang Seng China Enterprises Index, which tracks mainland stocks in Hong Kong, is poised to rally to 10,900, or about 9 percent from Wednesday’s close, before moving lower again, he said in an interview on Bloomberg Television.

“This decline that we are anticipating is something that may be drawn out,” DeMark, 68, who has spent more than 40 years developing indicators to identify market turning points, said on Wednesday. “We are convinced that we will see a rally” in the short term, but “we see the markets eroding again,” he said.

The Shanghai Composite Index has advanced 5.3 percent to 3,243.09 in the past two days on speculation the government will step up stimulus to revive the flagging economy. It has rallied 11 percent since reaching this year’s low on Aug. 26, trimming its drop since mid-June to 37 percent. The Hang Seng China Enterprises Index has jumped 9.6 percent since trading at a two-year low on Monday.

Too Pessimistic

Demark, who has advised hedge funds including George Soros’s Soros Fund Management and Leon Cooperman’s Omega Advisors, has made several successful calls on the Chinese stock market in recent years. He correctly predicted on July 27 that the Shanghai benchmark would fall 14 percent to 3,200. In an interview on Aug. 25, he said the gauge will fall to 2,590, a level it hasn’t traded at since November.

DeMark said Wednesday that policy makers’ intervention has delayed the decline and the short-term bounce is due because too many investors are pessimistic.

“Every opportunity the market had to break down, there was a reaction by some influence, whether it’s the central bank or the government,” he said.
When “too many people were negative,” the markets will “move sideways” or “go upside,” he said.

DeMark’s Scottsdale, Arizona-based company makes money by charging traders for access to its indicators. It also sells subscriptions to the indicators on the Bloomberg Professional service.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE