Here’s What Happened When China Stocks Jumped Like They Are NowBloomberg News
China’s stock market is surging, sending the Shanghai Composite Index to a three-year high and extending its gain during the past 10 days to 15 percent amid record trading.
A look at eight occasions during the past decade when shares climbed this much suggests short-term caution: the Shanghai Composite dropped an average 3.3 percent during the following month, with the gauge falling seven times. The outlook was more optimistic for investors with a longer-term horizon, as the index climbed 6 percent over the next three months on average.
Here’s what drove the past rallies and what the Shanghai Composite did in the aftermath:
*October 2010 -- The index jumped 15 percent over 10 days as the government pledged to boost household incomes and industries such as technology as part of its five-year plan, while economic indicators showed stronger growth. Next one-month return: -3.8%. Three-month: -11%
*February 2009 -- Stocks gained 17 percent as falling inflation fueled speculation of central bank stimulus and government efforts to support the property market. Next one-month return: -4.4%. Three-month: +15%
*November 2008 -- The Shanghai Composite climbed 18 percent as China announced a more than $580 billion stimulus package to revive economic growth amid the global financial crisis. Next one-month return: -2.6%. Three-month: +8.7%
*May 2008 -- The gauge advanced 17 percent as the nation’s biggest banks reported improving earnings and the government cut the tax on equity trading. Next one-month return: -10%. Three-month: -28%
*May to July 2007 -- Volatility in China’s stock market surged as a flood of new investors in shares countered concerns that the government would tighten monetary policy to curb inflation. Next one-month return after May rally: -1%. Three-month: +17%
*February 2007 -- The Shanghai Composite rallied 16 percent, recovering from losses triggered by reports of a government clampdown on stock-market loans. Banks climbed on rising earnings. Next one-month return: +4%. Three-month: +21%
*December 2006 -- The gauge climbed 18 percent as China’s surging economic growth spurred strategists to predict further gains in 2007 while Chinese lawmakers discussed a proposal to cut corporate tax rates. Next one-month return: Little changed. Three-month: +31%
*May 2006 -- Stocks jumped 18 percent, led by commodity producers, as copper prices surged to records on signs of buoyant global growth. Next one-month return: -8%. Three-month: -5.6%
— With assistance by Michael Patterson