Similarity between China and Japan Stock Market Story

The Japanese market's experience in the late 1980s serves as a cautionary tale. After peaking at 38,294, the market suffered a severe correction, taking 40 years to recover. Similarly, the Chinese stock market has been experiencing a downturn since 2018, with eerie parallels to Japan's trajectory. Although Shanghai's data is limited, the FXI (China's equivalent of the S&P 500) and KWEB (China's equivalent of the Nasdaq) track the Hong Kong Stock Exchange and exhibit similar patterns.

In the late 1980s, Japan's stock market plummeted 60% within three years, bottoming out at 15,497. However, it took two decades to find its true bottom, sinking further to 8,190 in 2003 and eventually hitting 7,229.72 in February 2009 - an 81% decline over 20 years. Yet, after finding its bottom, the market staged a remarkable recovery, surging 554% to a recent high of 40,063.79, outpacing the S&P 500's 517% gain since 2009.

Fast-forward to China: the Hong Kong market peaked at 32,887 in January 2018 and has since corrected by 14,863 (around 55%) in just four years. This mirrors Japan's initial decline, followed by a further 50% drop over the next decade. This unsettling similarity has led many to label China's market as "uninvestable." While history doesn't repeat itself, it often rhymes, and the parallels between Japan's and China's market trajectories are striking.