The new bear market: China

Resist the urge to buy in China's bear market; the better bet is to use caution.

By Kim Peterson May 18, 2010 5:07PM
Michael BrushBy Michael Brush

It's official. China is now in a bear market.

Technically defined as a 20% decline following a rally of at least 20%, the bear surfaced in Chinese stocks last week when the Shanghai Composite index posted losses that took it 21% below November 2009 highs. 

While it may be tempting to buy Chinese stocks on such a large retreat for stocks of companies working in an economy with robust 11.9% annual growth, it's wiser to remain cautious with this bear.

It's no cute and cuddly panda just yet, if history is any guide. 

On average since 1990, Chinese bear markets take stocks down 35%, according to the market research firm Bespoke Investment Group, and the current 23% decline isn't even close. Plus the Shanghai Composite last week fell below last August lows of 2,667.75, a negative technical sign.

"The current technicals suggest that there's more downside in store for China’s bear market in stocks," says Bespoke Investment Group. 
 
 
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