An extraordinary quarter-century in China's stock market
The Shanghai exchange may be in the doldrums but is substantially up from its wild early years
CNN started reality TV with rolling 24-hour news - merging news and drama into one.
In 1989, it had its cameras prelocated on hotel balconies and high-floor window sills, capturing the events of late May and early June in Tiananmen Square in real time.
I was watching live TV in the early hours of June 4, 1989, as hundreds of people ran from the mayhem. The students - those who survived - are now well through their careers.
Their few days of fame were watched by us fund managers with as much interest as we watch Ukraine today. We knew it was important geopolitically, but as China had no stock exchange, it was not of immediate professional interest.
The incident was not going to affect our pension fund portfolios much, apart from a short-term wobble in Hong Kong.
It is difficult to comprehend, but 25 years ago, the Shanghai Stock Exchange did not exist. The first Shanghai exchange was founded in 1866, and by the 1930s the city was the financial capital of the East.
At the exchange's re-establishment on December 19, 1990, a short 18 months after Tiananmen, the Shanghai Composite Index stood at 100. The market ended June 4, 2014, at 2,024 - a rise of 1,924 per cent in 25 years.
The rise of the Chinese economy in the past generation has been truly dramatic.
The journey has been as volatile as a teenager's moods. The index peaked on October 16, 2007, at 6,092, when the market was the second-largest after Wall Street. Since then, it has lost a 66 per cent.
Yet the market today is worth 14.9 trillion yuan (HK$18.4 trillion), against a mere 8 million yuan in 1989.
The past generation has been gifted an unprecedented growth of capital the likes of which we shall never see again.
The agonising slide of the past six-and-a-half years pales into insignificance when compared with the first Chinese market cycle. The index soared an impossible-to-believe 1,192 per cent in the year that ended on May 25, 1992, from 110 to 1,421.
Of course this was just the market seeking to price the value of an economy that had not been properly valued under communism. The joys of capitalism were short-lived, as the stock market bottomed out just six months later at 399 - a drop of 72 per cent!
But three months after that, on February 16, 1993, it topped out at 1,536, before plumbing even greater depths to 334 on July 29, 1993 - a fall of 78 per cent.
Such volatility would have broken the hearts of most investors, but the experience perhaps battle-hardened the Chinese investor, and the market found a more stable valuation through the 1990s as the export economy grew at high speed.
Despite the dotcom crash in the outside world in 2000, government liquidity injections supported the market until June 13, 2001, when the index reached 2,242. It then took four years to fall by half to 1,012 points.
The rise of 500 per cent in the two years from July 2005 took the index to its record high, driven by the internationalisation of China's capital markets.
Over the past 25 years, the mainland market has gone from a casino to something a little more sophisticated, from full state control to loosely controlled capitalism. Through the journey, we can capture a few fundamental lessons of investment.
Despite the massive volatility, over 23-and-a-half years the market has risen 1,924 per cent, which is a cool 13.7 per cent per annum. That's got to be better than working. Yet who could have survived such volatility without panicking in or out?
We can see how emerging markets develop first locally, then with foreign interest. The latter usually pushes the index to exorbitant heights before it senses the height and feels the cold.
My favourite example of such investor discovery is Taiwan, where the stock index rose to 9,000 in 1993 before falling quickly to 3,000 and took 15 to 20 years to recover to the 9,000 level. But the market is now mature and valued reasonably correctly.
Perhaps one lesson is that China's restricted access to global capital has hardly prevented volatility; perhaps it is better to let international investors in earlier rather than later, to smooth the gain and the pain.
And the volatility in the market can perhaps explain the doldrums of the Chinese market over the past two years.
A long boom leads to a long bust; there is no free lunch. Markets overshoot and undershoot, but eventually they price wisely.
Richard Harris has built investment businesses across Asia and is the founder of Port Shelter Investment Management in Hong Kong