After rebounding from its falls earlier this month, the Chinese share market fell last night by more than 8.5%, as measured by the Shanghai Composite Index. The most recent fall marks its largest single day descent since 2007, and appears to reflect a combination of factors that are contributing to negative sentiment among investors. Notwithstanding the volatility experienced over the past few weeks, those who have been invested in the market for the past year have still generated positive returns of approximately +70%.

What led to the most recent round of falls?

The most recent falls appear to reflect a combination of factors. These include poor Purchasing Managers Index data released on Friday, moves to allow a more volatile Reminibi currency, as well as a testing of the resolve of the Government to support the market.

Our current analysis suggests that the negative sentiment we have seen in the last few days is the sort of typical volatility that is often experienced following a significant share market correction. Following the share market fall in 1987 as well as the Global Financial Crisis, share markets took time to build firm bases, and entered periods of protracted volatility before then commencing clear rising trends, and it’s likely that this is what we are now experiencing with China.

What does this mean for global markets?

Globally, while volatility is likely to remain high, and a further correction is possible, we see little risk of a recession or bear market in global shares at this point in time. We also expect the Chinese government will support economic growth through strong monetary policy easing and other measures which, in turn, should help support Chinese shares. We will continue to watch and monitor the market, and will make necessary changes to portfolios as the situation evolves.

About the Author

Dr Shane Oliver is Chief Economist and Head of Investment Strategy and Economics at AMP Capital

Shane is responsible for AMP Capital's diversified investment funds. He also provides economic forecasts and analysis of key variables and issues affecting, or likely to affect, all asset markets.

About the Author

Nader Naeimi is Head of Dynamic Asset Allocation

With over 16 years’ experience in Australia’s financial markets, including 12 years as part of AMP Capital’s Investment Strategy and Economics team, Nader’s responsibilities include analysis of key economic and market factors influencing global markets.

Important note: While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided.