Volatility returns to Chinese equity market

The Shanghai Composite suffered another bout of volatility as margin requirements were tightened once again. This is becoming a regular pattern as the authorities move to take leverage down. Just like the property market, the authorities want the Chinese equity market to be firm rather than racing away, but they do not want to precipitate a crash. Commentators are ramping up the rhetoric on a stock market bubble, just as they did in the US from 2009 onwards. In my view, trying to time a market is less valuable than recognising its trend. For example, China along with most developed equity markets remains in a bull trend, while after the latest moves US, UK and European bonds now look to be in a bear trend with generic 10 year bond yields having broken above their long term moving averages over the last week. This is not to say that there won’t be corrections along the way, but the lesson is to buy the dips of bull trends and sell the rallies in bear trends. Read my weekly note here: (VIEW LINK)