GOLDMAN: Get ready for 6 more weeks of Chinese market chaos

Strap yourself in, this could go on for a while.

China’s stock market rout kicked up a gear on Monday, with the Shanghai Composite collapsing 8.5% after a dire performance last week.

Goldman Sachs is now warning clients that it thinks the sell-off will go on for at least another 6 weeks and could last for up to 2 months.

In a note sent to clients on Monday, Asia Pacific analyst Timothy Moe & his team say only positive economic data can put a floor under China’s tumbling markets now. And the first signs of anything of the sort are at least a month and a half away.

The government has until now being trying to prop up the markets with policy announcements and state cash, but Goldman doesn’t see this as a good enough solution.

Here’s Moe (emphasis ours):

The extent to which markets have fallen naturally stirs contrarian instincts regarding when to look for some sort of rebound. It will probably take some tangible evidence- stable/better high frequency activity data- for this to occur, rather than simply policy announcements.

This is still 6 weeks to 2 months away for China, as stabilisation appears unlikely before early October, given continued disappointments in external demand, the policy-induced “uncertainty shock” from equity market and currency moves, temporary production shutdowns in 7 provinces in late Aug/early Sept for major national events, and slower fiscal/infrastructure ramp-up than expected.

However, if policymakers react as they have in the past, some modest sequential growth improvement in 4Q still seems likely.

If Goldman’s prediction is true, it will have a disastrous effect on the global economy. Markets around the world are tumbling today, amid fears that slowing Chinese growth could have a knock-on demand for other nations. If Chinese stocks keep tanking, global stocks likely will too.

NOW WATCH: You’ve been rolling your shirtsleeves wrong your entire life

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at research.businessinsider.com.au.