Don't worry, Chinese stocks are usually in a bear market

By Corey Stern

While many on Wall Street are concerned about plummeting Chinese stocks, Fundstrat's Tom Lee is not.

In a note to clients on Tuesday, Lee pointed out that the Shanghai Composite - which fell 8.5 per cent on Monday, and continued sliding into Tuesday - has had 10 bear markets since 1990. Over this period, the Shanghai Comp has spent 63 per cent of the time in a bear market.

Meanwhile, during the same period, the S&P 500 has only had two bear markets.

Thus, Lee argues that while the Chinese economy has become increasingly important to the health of the global economy, a bearish market for Chinese equities should not necessarily be considered a warning sign for the US.

"SHCOMP spent 188 months of the last 25 years (63 per cent of the time) in a bear market, with 10 bear markets averaging 49 per cent declines," Lee wrote. "In this same period of time, the S&P 500 was only in a bear market twice totaling 52 months (18 per cent of the time)."

Furthermore, the S&P has had an average annual gain of 6 per cent during the past ten SHCOMP bear markets, which is in line with historical average returns.

"In other words, over the past 25 years, China bear markets do not spill into the US," Lee concluded.

Check out this side-by-side comparison of the SHCOMP and S&P over the past 25 years.