In the last seven months, the Shanghai Composite Index has enjoyed a powerful winning streak to its highest level in a year. And, according to a recent news story, "Crowds are back on Guangdong Road [China's 'Wall Street' equivalent] to discuss stocks" like tweens twittering celebrity gossip. (June 28 Associated Press)
The main topic of their conversation: Is the bull market in China back for good?
By all mainstream accounts, the answer to that question is Y-E-S. The way they see it, a slew of bullish "fundamentals" has emerged to provide long-term support to China's equity culture; such as: Strong export demand, a rebound in commodity values, and the re-opening of China's IPO market.
On this, the following June 28, 2009 Bloomberg passage captures the full extent of the rising Shang-high hopes:
"China's economic outlook is the brightest in Asia and growth may exceed investor expectations... China will continue to lead the global stock-market recovery after gains this year propelled it into a bull market."
I've got two words for you: Deja Vu.
Fact: This isn't the first time the usual pundits have hitched their bullish wagon to China's rising star. Think mid-2007, right before global stocks topped. At the time, the Shanghai Composite was orbiting the never-seen-before 6,000 level amidst the most overtly bullish backdrop in the nation's entire history. "With more new stocks listed," began a June 2007 New York Times, "the bullish trend will keep going until the index hits 15,000."
Turns out, China's shares were just as "wobbly" as the rest of them. They joined the global market meltdown in mid-October 2007 and plunged more than 60%. But one month before the market hit its all-time peak, Elliott Wave International's September 2007 Global Market Perspective went on high alert to the downside potential and warned:
“The only bubble that continues to expand is that in the Chinese stock market. The following statistic suggests strongly, however, that its peak cannot be far off.”
Then, at the market's two-year low in late 2008, ALL major fundamental arrows pointed D-D-DOWN. In the words of one news report from the time:
"China's Bull Gets Shanghaied... I'm struggling to find a catalyst that will turn this market around... Clearly the situation is fairly ugly at the moment." (Bloomberg)
YET, "turn around" is exactly what China's stock market did: From its late 2008 bottom, it took step one UP in a powerful rally to the one-year high we see today.
And, while the usual folks saw no end in sight to China's bearish captivity, EWI's Asian stock market experts foresaw the start of a meaningful uptrend. The December 2008 Global Market Perspectivepresented the following close-up of the Shanghai Composite and wrote:
"For now, the ball appears to be in the bulls' court."
The fact remains: While fundamentals have kept the mainstream experts BEHIND the two of the biggest turns in China's stock market, Elliott wave analysis has remained one step AHEAD in both cases