Bear market looms in China, but it shouldn't affect U.S.
— -- Investors might keep hearing about how fast-growing the Chinese economy and stock market are, but it's the Shanghai stock market that now is flirting with a new bear market.
Even as U.S. stocks slowly climb out of their hole, the Chinese stock market is down nearly 20% from its high, putting it dangerously close to the unofficial definition of a bear market.
Chinese stocks, measured by the Shanghai A-share stock price index that tracks domestic buying of stocks, slumped more than 4% Wednesday and are down 19.8% from the Aug. 4 high. The Shanghai B-share index, available for non-Chinese investors to trade, is down 16.3% from its Aug. 4 high.
"You're seeing a correction as Chinese stocks work off the overbought issue and hype," says Mike O'Rourke of investment management firm BTIG.
Stocks in China are suffering as China's officials are vowing to slow down free-flowing lending, says Romeo Dator, portfolio manager at U.S. Global Investors. That could cool the economy and take away money some Chinese investors have plowed into stocks, he says. Trouble in China's stock market worries investors, as China's stocks suffered early when the global financial crisis began. U.S. stocks have been more stable: the Standard & Poor's 500 is down 1.6% from its high this year on Aug. 13.
Experts on China's economy and stock market say the problems there are unique and don't portend challenges with U.S. stocks because:
•Chinese stocks ran up so much. The Shanghai stock market doubled from its bear market low on Nov. 4 to its 2009 peak. A pullback was to be expected, says Donald Straszheim, managing principal of investment firm Straszheim Global Advisors. "The Chinese market has been extraordinarily volatile," he says. "It was getting frothy."
•Factors hurting Chinese stocks are not an issue in the U.S. In China, the fear is that the government may curtail stimulus spending and coax the banks to slow down lending, O'Rourke says. But in the U.S., much of the stimulus is yet to be spent, and banks are being urged to lend more.
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