Two patterns occur consistently in markets — crashes follow bubbles and crashes always provide a second chance to get out.
In March 2000, the internet bubble topped. The NASDAQ 100 index fell more than 25 percent in six days and then bounced 22 percent higher in just four days.
Bulls were convinced the initial decline was a brief correction. Realists understood they had been given a second chance to sell.
Gold and silver prices displayed the dip, recover, crash model in 2011. Stocks in the U.S. followed the pattern in 2007, before the devastating bear market of 2008.
Further back in time, stocks in the U.K. in 1720 showed the pattern in the South Sea bubble.
Despite the appearance of this pattern over almost 300 years of history, some traders believe this time is different.
In China, some traders believe the government can defend the bubble against market forces.
They are likely to be proven wrong.
The biggest question about Chinese stocks isn’t really how far they will fall. The biggest question is how far the impact of the decline will be felt.
According to The Wall Street Journal,
there were about 70 million investors in China’s stock market and 70 percent of them had less than $15,000 in their accounts.
This was largely a local market and many small investors could see their life savings dwindle. But foreign investors have been locked out of China for years and are unlikely to have large stakes at risk.
This means most of the losses are likely to fall on small Chinese investors.
China’s stock market crash will destroy the wealth of millions but is unlikely to have a large impact anywhere else in the world.
Instead of watching the stock market, investors concerned about China should be watching GDP growth.
A slowdown in China’s GDP could be the trigger of a global recession and bear market.
© 2023 Newsmax Finance. All rights reserved.