In this edition of our annual China stock market outlook we explain that we expect China’s stock market to be neutral in 2020 and become wildly bullish going into 2021. In essence China’s stock market is in no man’s land for 4 straight years now. Consolidations are tough to stomach, and they mostly result in investors giving up. The problem is they don’t look back, and miss the next bull market. They only discover the new bull trend too late, and get in at too high prices. As part of our annual series of forecasts we are on record with a neutral to bullish China stock market outlook as part of our 2020 forecasts and a strongly bullish China stock market outlook in the 2nd half of 2020 and/or going into 2021. We strongly recommend to follow our 2021 forecasts as well as the must read forecasts of InvestingHaven’s research team to stay on par with the latest evolutions.
Looking at last year’s forecast for China’s stock market is was interesting that we published it right at a time when the whole world was thinking China’s stock market would crash. We said nothing is further from the truth, and said to get into China’s top stocks right at time when it’s stock market bottomed. A heroic call, spot-on, but nobody had the guts to do so.
That’s how investors make big money: by doing things that nobody else dares to do, and going against the tide. Obviously, this is tricky business, and the objective is not to simply be contrarian in order to be contrarian. There has to be a smart strategy in place, and it all starts with thorough chart analysis as per our investing method.
Why Forecast China’s Stock Market?
As China seems to be the victim of U.S. sanctions who would we see value in forecasting China’s stock market? In the end China is doomed to crash, if it’s not this year it will be next year, right?
Wrong, horribly wrong!
China’s stock market has fallen enough to be attractive. Moreover, it is for 4 straight years in a consolidation. And if there is one thing we know about consolidations it is this:
Consolidations create a very bullish long term outlook for any asset or market. Essentially, during sideways trading, sellers tend to leave the market every time the price peaks. If a consolidation goes on long enough all sellers leave this market. That’s the ideal market condition for a new bullish trend.
We strongly believe China’s stock market will become bullish at a certain point in time. It may be in 2020 or 2021, but most likely it will start in 2020 and gradually build up going into 2021.
What we are after at InvestingHaven is to hit those big moves, the ones that occur twice per year. We said that Forecasting The 3 Top Opportunities Per Year Becomes InvestingHaven’s Mission, and we are keen on being among the best forecasters in the world.
In order to do so we require an open mind, and monitor all markets globally: all stock markets in all countries, all commodities, precious metals, currencies, crypto.
China has a fair chance to be among the outperformers in the world in the 2020 to 2021 period, this is why.
Our China Stock Market Outlook for 2020 and 2021
Let’s start with our conclusion. Readers who don’t want to understand our underlying forecasting method can ignore the rest of the article.
The weekly and monthly charts confirming each other is very powerful. We conclude we only have to look at 3400 points and 2800 points for our China stock market outlook 2020 and 2021.
We believe 2020 will be a mildly bullish year for China’s stock market. We expect going into 2021 to see a wildly bullish move. The conditions for this to be true:
- China’s stock market (SSEC) does not structurally break below 2800 points. This is the breakdown level.
- China’s stock market (SSEC) breaks above 3400 points at a certain point in time. This is the breakout level.
Why don’t we include any other leading indicator in our China stock market outlook for 2020? Because we have no reliable one.
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We consider China a crucial market in emerging markets. So once China goes up we will see evidence of our emerging markets outlook materializing.
Interestingly, by far most China stock market forecasts are bearish as we’ll see in the next sections. However, there is one, and just one, bullish oriented forecast. It is published on MarketWatch, and the underlying idea is a strong relief rally that is upcoming.
We believe the same is about to take place but it may take a while until this materializes!
China Stock Market Forecast for 2020 and 2021
Based on the leading indicators and more importantly the chart setup we see the following China stock market forecast for 2020 and 2021.
This is our forecasted China stock market outlook for the coming years. Prices reflect the Shanghai stock index SSEC.| Year | China stock market outlook | Conditions | Invalid |
|---|---|---|---|
| 2020 | Mildly bullish (SSEC tests 3400) | Euro does not accelerate its decline | If SSEC falls below 2400 AND/OR Euro breaks down |
| 2021 | Wildly bullish (SSEC breaks above 3400) | Euro rises (or stable) | If SSEC falls below 2400 AND/OR Euro breaks down |
| 2022 | First bullish then bearish | Euro rises (or stable) | If SSEC falls below 2400 AND/OR Euro breaks down |
Lagging Indicator for our China Stock Market Outlook
We have said it over and over again: stay away from the news, and be extremely selective.
As per Tsaklanos his 1/99 Investing Principles it is only 1 pct of the news that somehow matters to investors, the rest is worthless at best and misleading at worst.
Most, if not all, China stock market news is bad. A few illustrations:
China’s economic growth drops to lowest level since 1992 (CNN)
Stocks Drop on China Data (WSJ)
America’s Stock Market Bubble Cannot Help China Hide Its House Bubble (Forbes)
Asian stocks decline as US-China tensions heat up (CNN)
Even the fact that huge amounts are withdrawn from China’s market is most likely a lagging indicator.
This is only a subset of the current headlines. And this saga is going on for more than a year now.
If there is one thing that’s clear: the last China bull standing must have given up as well.
That’s how it goes with investing: perception influences the brain in such a way that it becomes impossible to see ‘the other side of the story’. The power of repetition makes us think in one direction only.
So how is it possible that we can come with a bullish China stock market outlook for 2020 or 2021?
It’s because news is a lagging indicator. It is even ‘worse’: media is a contrarian indicator when it reaches extremes. In other words, the more media talk about a stock, market, asset, the higher the probability the tide is about to turn.
Leading Indicators for our China Stock Market Outlook
What we need instead is leading indicators.
In the previous section we made the point that news is a lagging indicator. At peak fear in the media last year China’s stock market turned around.
Who had the guts to buy China stocks right at a time the number of bearish China stock market headlines were countless?
The answer: hardly anyone.
Those who did saw their capital double within 6 months.
That’s how it goes.
Let’s look at leading indicators for China’s stock market outlook.
Leading Indicator: Euro
First, the Euro.
As seen on the first chart the Euro has a track record of ‘introducing’ (forecasting) big moves in other markets. The one characteristic is this violent breakdown or breakout in the Euro that triggers a domino effect in many other markets.
What does this mean for our China stock market outlook? One thing is important to note: it does not necessarily have the same meaning as for our Our Emerging Markets Outlook For 2020 And 2021.
The Euro is positively correlated with emerging markets. However, China can go against the tide.
Case in point: China’s monster rally in 2014. This happened right at a time the Euro was crashing, the Dollar was booming, and crude oil crashed (more details in our crude oil forecast).
So while the general rule of thumb is that a rising Euro is supportive for higher emerging markets prices it may also happen that China simply ignores the Euro.
The Euro is not the only reliable leading indicator for China’s stock market!
China Stock Market Chart and Price Targets
If the Euro is not always reliable, and the news is a lagging indicator, than we have to rely on the charts.
Below are the Shanghai stock exchange composite (SSEC) charts. First the monthly, then the weekly, which is the classic top-down approach!
The monthly SSEC chart is pretty straightforward.
The long term, 2 decade long rising channel is still intact. Note how the SSEC fell outside of this channel last year, only to move back up into the channel. Our rule of 3 monthly closes applied here as well. The 4th monthly close was back inside the channel, validating the importance of this.
We see 2 giant bull runs on this SSEC chart: one in 2005 and one in 2014. So that’s one per decade. There is 4 or 7 years of a consolidation prior to those giant moves.
We want to catch only those big moves, not interested in the periods in between. We certainly want to get out in time to avoid a crash in China. Timing is crucial, and precision as well.
All that matters is 3400 points as a breakout point, and 2800 points as a breakdown level. That’s it.
The weekly chart below tells the same story.
This 4 year consolidation is shown in great detail. The breakout level is 3400, exactly the same as the monthly chart above even though both exhibit different patterns.
The weekly and monthly charts confirming each other is very powerful. We conclude we only have to look at 3400 points and 2800 points for our China stock market outlook 2020 and 2021.
Results of our previous China Stock Market Predictions
This is an overview of our forecasts for China's stock market outlook which we published in previous years, mostly 6 months prior to the start of the forecasted year. Prices reflect Shanghai's stock market index SSEC.| Year | Our forecast | Highs | Lows | Accuracy of our outlook |
|---|---|---|---|---|
| 2017 | Bullish, forecasted at 3084 points | SSEC 3435 | EEM 3005 | Spot-on |
| 2018 | Bullish (break above 3400 points) otherwise neutral | SSEC 3580 | EEM 2448 | Accurate |
| 2019 | Very bullish, forecasted at 2440 points | SSEC 3290 | EEM 2442 | Objective partially met |
China Stock Market Predictions by other Analysts
We are again at InvestingHaven the first ones to publish a China stock market outlook for the coming year. Note there is hardly any other outlook formally published on China’s stock market for 2020. The one indirect outlook is the one from Medley Global, and the one more direct outlook comes from Russell Investments.
This is an overview of forecasts when it comes to China's stock market outlook for 2020 and 2021 by other analysts. We don't support these forecasts, we just share them to illustrate how other analysts think about China's stock predictions for 2020 and beyond.| Year | Analyst | China stock market prediction |
|---|---|---|
| China stock market outlook 2020 | Medley Global | Indirect forecast for China, more of a global stock breakout forecast |
| China stock market outlook 2020 | Russell Investments | Mixed: some bullish signs but also signs of slowdown |
| China stock market outlook 2020 | (no other predictions published so far) | (no other predictions published so far) |
Continuous Follow Up on our China Stock Market Forecast (free forecasting email newsletter)
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We continuously, throughout the year, publish updates on our annual forecasts. Any revision in our forecast are published in the public domain and appear in our free newsletter. Therefore, the only way to track the pulse of markets and stay tuned with our forecasts is to subscribe to our free newsletter >>
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