The sharpest rally for Shanghai shares in six years a mere 48 hours after the steepest sell-off since 2008 is a clear sign that investors are willing to take a chance that the world's best-performing stock market of last year could repeat the feat this year.
And that is because, if history is any guide to future performance, the market has been here before.
"This sudden volatility in the mainland markets will not scare foreign investors. The rally last time took place after a 10 per cent correction," Khiem Do, the head of Asian multi-asset investments at Baring Asset Management, told the .
Rewind to 2008 when mainland stocks had been beaten down by the volatility from the global financial crisis. Sharp falls over successive weeks were the trigger point for the Shanghai Composite Index to start an October rally that saw it virtually double over the following nine months.
A similar pattern was repeated in 2010, where the peak-to-trough rally was about 40 per cent. Meanwhile, a 10 per cent fall in June 2013 was arguably the starting point for last year's bonanza, with a sideways shift finally giving way to a last-quarter surge that took the gain for the year to about 50 per cent.
"Foreign investors who had missed the rally last year are probably waiting on the sidelines for this correction to finish and to get in the mainland market," said Do, who himself missed out and has actively been putting his money to work in the early weeks of this year.
