China stocks: Imagine Wall Street has had a bad year? Shanghai was even worse

While Dow and other major US indices have declined in recent weeks, sales in China began much earlier and have been worse.
The Shanghai Composite reference went down in a bear market – a 20% decline from a recent high – in June. And things have gone further downhill since then. Hong Kong's Hang Seng, packed with big Chinese companies, followed Shanghai in the bear's territory in September.
China-focused investors have had many bad news to fight this year, including the country's economic downturn and trade war with the United States. China's economy is also charged with debt and is facing concerns about a property bubble and stability in its currency.
A trade faction, adopted by US President Donald Trump and Chinese leader Xi Jinping on December 1[ads1], has done little to calm any country's markets. Dow has fallen about 10% since the beginning of December, and Shanghai Composite more than 5%.
The losses on Wall Street have been particularly steep because investors in the US are concerned about the rate at which the Federal Reserve raises interest rates and the possibility of an economic downturn next year.

Investors in China have less to worry about on that front.

Economists expect Beijing to add more stimulus next year, indicating that growth will weaken further in the coming quarters.

This year, the Chinese government reduced taxes and reduced the amount of cash the banks had to keep in reserve in an attempt to increase growth. More of the same in 2019 can support the company's earnings and stock prices, analysts assume.

Discount on Dow

Chinese stocks look cheap compared to those on Wall Street. Following the big sale this year, Shanghai Composite deals with almost 40% discount on Dow, according to a common valuation method used by investors.

  Comment: What to expect from 2019 & # 39; post-peak & # 39; economy

"Following the 2018 correction, we believe that the risk has become very beneficial for Chinese stocks," said Mike Shiao, a fund manager of the investment company Invesco, in a note to clients. 19659007] There are another factor that weighs on Chinese stocks.

Large Chinese companies often promise their shares as collateral against loans from brokers. If brokers start to worry about companies' ability to repay loans, they relieve their shares, according to Diana Choyleva, chief economist at research firm Enodo Economics. This happened a lot earlier this year and intensified losses in the market.

Up to 15% of Chinese shares have been mortgaged in this way, estimates Choyleva.

" China's stock market is currently in the crush of a pledged division, "she said.

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