History suggests Chinese stocks could bounce today

Carl Court/Getty Images

At 11.30am Sydney time this morning the eyes of the financial world will once again be on China’s stock market open.

The benchmark Shanghai Composite was hammered yesterday, losing 8.49% – its largest one day percentage decline since February 27, 2007.

The continued plunge in China’s stock market has weighed on risk assets globally.

Stocks have been hammered across Asia, Europe and the US. Commodity prices have tumbled to a multi-decade low. Crude oil was smashed to the lowest since the global financial crisis and the Australian dollar briefly flirted with falling below 70 US cents this morning, among others.

So what lies in store for Chinese stocks, and more broadly risks assets globally, today?

While history is no guarantee of future performance, it certainly suggests a rebound in Chinese is stocks is likely to occur Today.

Combined with last Friday’s 4.27% sell-off on the Shanghai Composite, the index has now fallen 12.40% in just two trading sessions.

Being more than 10%, the index has suffered another two-day technical correction, something it has done on four separate occasions so far in 2015.

Here at Business Insider we decided to have a look at the history books to see how often a two-day fall of more than 10% has occurred, and what has subsequently happened the day after fall of such magnitude has been recorded.

It’s quite revealing.

Since the start of 1997 the index has registered a two-day decline of more than 10% on eight separate occasions. Following seven of these declines, the index closed higher in the next trading sessions.

That’s a 87.5% strike rate.

Many will be hoping that history will repeat today, making that record eight from nine.

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.