The recent plunge of Chinese stocks — the Shanghai Composite index dropped 32 percent from June 12 to July 8 — put a fright into U.S. investors. Many were concerned about contagion—that the slide would carry over to U.S. stocks.
But not to worry, says Liz Ann Sonders chief investment strategist with Charles Schwab. "The recent rout in the Chinese stock market is yet another brick in the (Great) Wall of Worry the stock market generally likes to climb," she writes in Barron's.
So what is the connection between U.S. and Chinese stocks? "The correlation is low to non-existent," Sonders says.
"Chinese equities are one of the least correlated markets in the world. When looking at daily percentage point change, there is no relationship between onshore A-shares traded on the Shanghai Composite and US equities, according to Bespoke Investment Group."
China also remains a small market overall for U.S. companies, Sonders notes.
But Jeremy Warner, assistant editor of The London Daily Telegraph,
doesn't take China's stock market's drop lightly.
"While all Western eyes remain firmly focused on Greece, a potentially much more significant financial crisis is developing on the other side of world," he writes.
"In some quarters, it’s already being called China’s 1929–the year of the most infamous stock market crash in history and the start of the economic catastrophe of the Great Depression."
The Chinese government has taken several steps to stanch the bleeding, including a $19.3 billion fund created by major brokerage firms to buy stocks. But after a rebound from July 8-13, the Shanghai composite has slipped 4.1 percent over the last two days.
China's economy now bears an eerie resemblance to the U.S. economy in 1929, Warner says.
"After more than a decade of frantic growth, extraordinary wealth creation and excess, both economies — America in 1929 and China today — are at roughly similar stages of economic development."
© 2024 Newsmax Finance. All rights reserved.