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Mondial Chart of the week - 11 October 2021
What this chart shows
We’re sticking with China this week. This chart shows the price returns for the MSCI China index and the maximum drawdown the index experienced over each calendar year. Maximum drawdown reflects the greatest peak-to-trough fall over the period – the worst possible loss an investor could have made if they had bought at the peak and sold at the trough in the same calendar year. The equity market falls in China from its peak in February we exacerbated by recent tightening of regulations and the imposition of sanctions on a wide range of the private sector, souring investor sentiment and confidence, as well as the continuing spread of the delta variant.
As we touched on last week, more recently fears of default at China’s largest property developer have spooked markets. Whilst it might have felt like an extraordinarily volatile last few months, this year’s maximum drawdown (so far) of -33% is only marginally worse than the average calendar year maximum drawdown of 30% since 1993.
Why is this important?
Even during the strongest years for markets, there are always periods where markets fall. Volatility and capital loss are part of investing in any financial market and should be anticipated and that has certainly been the case in Chinese equities over time. In golfing terms, the falls we have observed so far this year really are ‘par for the course’ even though it might have felt extreme recently. There is still the risk that regulatory crackdowns continue as well as recent Covid-19 related restrictions further weighing on the growth outlook.
The Evergrande story has by no means been put to bed just yet either. Although we can’t be certain about future returns, long-term investors recognise that patience may be rewarded with strong gains. Appropriately valued and sized, investments in China offer relatively high, albeit slowing, growth opportunities, and periodic sell-offs, such as those experienced in the past eight months, can create longer-term buying windows..
Source: Bloomberg Finance L.P., Momentum Global Investment Management. Data to 7 October 2021.
Research Date: October 2021
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By Mondial DubaiWhat this chart shows
We’re sticking with China this week. This chart shows the price returns for the MSCI China index and the maximum drawdown the index experienced over each calendar year. Maximum drawdown reflects the greatest peak-to-trough fall over the period – the worst possible loss an investor could have made if they had bought at the peak and sold at the trough in the same calendar year. The equity market falls in China from its peak in February we exacerbated by recent tightening of regulations and the imposition of sanctions on a wide range of the private sector, souring investor sentiment and confidence, as well as the continuing spread of the delta variant.
As we touched on last week, more recently fears of default at China’s largest property developer have spooked markets. Whilst it might have felt like an extraordinarily volatile last few months, this year’s maximum drawdown (so far) of -33% is only marginally worse than the average calendar year maximum drawdown of 30% since 1993.
Why is this important?
Even during the strongest years for markets, there are always periods where markets fall. Volatility and capital loss are part of investing in any financial market and should be anticipated and that has certainly been the case in Chinese equities over time. In golfing terms, the falls we have observed so far this year really are ‘par for the course’ even though it might have felt extreme recently. There is still the risk that regulatory crackdowns continue as well as recent Covid-19 related restrictions further weighing on the growth outlook.
The Evergrande story has by no means been put to bed just yet either. Although we can’t be certain about future returns, long-term investors recognise that patience may be rewarded with strong gains. Appropriately valued and sized, investments in China offer relatively high, albeit slowing, growth opportunities, and periodic sell-offs, such as those experienced in the past eight months, can create longer-term buying windows..
Source: Bloomberg Finance L.P., Momentum Global Investment Management. Data to 7 October 2021.
Research Date: October 2021