Lessons from an A-share bubble

Is China downturn a social crisis caused by naive investors?

Jason Hsu, co-founder of Research Affiliates, explains why China's equity bubble was really caused by a redistribution of wealth and why government intervention in a crisis is not always helpful.

The Chinese stockmarket rallied more than 150% as the Shanghai Composite index rose from 2,037 at the end of June 2014 to its peak of 5,166 in June 2015. Many market commentators, most notably Janus Capital's Bill Gross, called it a "stockmarket bubble" and predicted a collapse. However, it bears asking, what is a stockmarket bubble and how is it different from a run-of-the-mill bull market? Simply stated, a bubble is an irrational bull market, where prices for stocks have run up much more than can be justified by improvements in the underlying corporate fundamentals. For the avera...