The stocks in Shanghai rebounded today, up +2,93% after a big drop yesterday. It was a global sell-off yesterday too, and many blame Shanghai for that. Others say Greece was the problem. The U.S stock market was about flat, but we saw a bigger drop in Europe, because Europe is the problem right now.
The sell-off in Shanghai yesterday was huge, but necessary. Take a look at the index above. Shanghai have skyrocketed and a drop above five percent is healthy. I can`t hide the truth that Shanghai is the worlds hottest stock market right now.
The Shanghai stock market is up 35% for the year and the correction yesterday is the sharpest correction in five years, led by financials and energy. The Shanghai Index was extremely overbought. The Hang Seng China Enterprises Index of Chinese stocks listed in Hong Kong also fell 4,6 percent.
Investors are optimistic about the prospects for further monetary stimulus to the economy and the valuation to the projected earnings had reached the top and peaked at the highest level since July 2011.
The authorities said the growth target for next year will be 7%, and that`s down from this year`s 7,3%. This is probably one of the triggers for the market correction yesterday, but I don`t think that is enough to alter investors bullish view of the Chinese stock market in the future.
The biggest loser yesterday was financial and energy stocks, but falling oil prices is bad for oil-exporting countries and company stocks around the world, but not for China. Oil-importing countries like China will benefit from the falling oil prices.
Take a look at the technical analysis of both Shanghai and S&P 500. Shanghai peaked in October 12, 2007, at 5,903. Now it is trading just below 3,000, which means this is probably just the beginning of a new bullish trend. S&P 500 is at the all time high.
Some people see opportunities after a correction like yesterday, but others are full of fear. Shanghai is up 2,93% today.
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