It's a Long Way Down for China Stocks Channeling Past Traumas

(Bloomberg) -- Three years after China’s equity bubble burst, the country’s investors are once again reeling from losses.

More than $3 trillion has been wiped out since January, all of France’s stock market capitalization and then some, as Chinese shares tumble the most in the world. Private companies are struggling with liquidity concerns, the economic outlook is slowing as a trade war with the U.S. deepens, and a weakening yuan is starting to prompt capital outflows.

History suggests it’s not over. While the Shanghai Composite Index is now down 28 percent since this year’s high, the gauge almost halved as the 2015 boom turned to bust.

“The time when the the market is going to turn around has to be reasonably soon, but I don’t think anybody knows exactly when," said Don Gimbel, senior vice president at CIBC Private Wealth Management, which oversees more than $50 billion. “It’s been unnerving because my portfolio performance has suffered dramatically after the selloff. I’ve been at this a long time and I tell my clients, ‘these are the times we have to live through to come out to the other side’."

Shanghai equities are now trading at levels last seen in November 2014. Stocks in China’s tech hub of Shenzhen have fared even worse amid mounting concern about margin calls. And companies listed offshore haven’t been spared the rout, with tech giants Tencent Holdings Ltd. and Alibaba Group Holding Ltd. slumping in Hong Kong and New York.

The Shanghai Composite Index climbed 2.6 percent on Friday after sliding as much as 1.5 percent in the morning. The heads of China’s central bank, banking and insurance regulator, and securities regulator all issued statements on Friday voicing their support for the market and promising measures to help ease financial pressures on companies, especially those with a high proportion of pledged shares.

The Hang Seng Index closed 0.4 percent higher, rebounding from a fall of 1.4 percent.

The following charts show the depth and intensity of the sell-off:

It's a Long Way Down for China Stocks Channeling Past Traumas

The drop in the Shanghai gauge from its peak is the biggest among 94 global benchmarks tracked by Bloomberg, including Greece and Argentina. Hong Kong’s Hang Seng Index isn’t far behind, with a 23 percent retreat.

It's a Long Way Down for China Stocks Channeling Past Traumas

The Chinese benchmark is also growing more volatile, registering at least three declines of more than 2.5 percent since markets resumed trading on Oct. 8 after National Day holidays.

It's a Long Way Down for China Stocks Channeling Past Traumas

Selling pressure is increasing. Almost 60 percent of the roughly 1,500 members on the gauge had a relative strength of less than 30 on Wednesday.

It's a Long Way Down for China Stocks Channeling Past Traumas

Last week, two thirds of the members had fallen to one-year lows, the highest proportion since 2011.

It's a Long Way Down for China Stocks Channeling Past Traumas

One more positive sign: turnover remains low, suggesting a lack of panic.

“We’re a lot closer to the bottom than the top," said CIBC’s Gimbel, who likes infrastructure and tech shares. Still, “there is an old saying on Wall Street, don’t try catch the falling knife, and I think that’s probably appropriate - why try to be a hero?"

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