There is now a “growing belief that the Chinese stockmarket is a barometer of global growth”, says Jack Ablin of Harris Private Bank. Last week’s sharp slide and subsequent rebound appeared to set the tone for other major indices. Analysts have also pointed out that last November’s bottom in Chinese equities foreshadowed the trough in Western markets a few months later.
But don’t put too much faith in Chinese stocks as a global bellwether as they reveal little about the wider Chinese economy. First off, they are subject to continual government interference – a greater influence than economic fundamentals, says Ablin.
And the market “yawned its way” through both the Asian financial crisis and the rocketing growth of the early 2000s, as Ben McLannahan points out in the FT. Shanghai is also still tiny compared to Western exchanges (it comprises just 1.5% of the FTSE World index) and is closed to foreign investors.
As such it can’t reflect global sentiment the way larger, open markets can, say David Oakley and Michael Hunter in the FT. So China “is not about to take over from the US as the benchmark market”.