TAIPEI, Taiwan -- Chinese stocks seesawed from a 150% gain to a 40% loss this year, scaring investors around the world.
Get ready for another wild year in 2016.
An awkward transition for China's mammoth economy, a possible new round of devaluation for the yuan currency and lingering issues behind the share price rout in mid-2015 will keep prices volatile with a downward trend, analysts say. That means long-term investor beware.
"I believe there will continue to be volatility in the Chinese markets next year as the economy struggles with the diverging state of the manufacturing and consumer economies," said Nitin Dialdas, CIO with Mandarin Capital in Hong Kong. Investors, he said, "will need to be vigilant for sharp moves both upwards and downwards and trade around these moves."
Manufacturing has tapered since 2011 as labor gets more expensive. High-tech private enterprise will take time to replace the role of factories in the world's No. 2 economy, said Liang Kuo-yuan, chairman of the Yuanta-Polaris Research Institute think tank in Taipei. Chinese officials are pushing for that replacement.
Some Chinese firms that produce or process commodities, a staple for manufacturing, may default on debt obligations, in turn lowering share prices, Dialdas predicted.
And China could devalue the tightly controlled yuan currency again in 2016 to help struggling exporters. China's devaluation in August hit global markets.
Compounding concerns, consumers daunted by GDP growth that has slowed over the past five years to around 7% aren't buying as much as Chinese officials want. Beijing hopes to turn spending into a new economic pillar.
Authorities are also still chasing insider trading and fraud among local securities brokers, another market destabilizer at least in the short term. Authorities have tried a series of measures since the mid-year share price fall to control volatility.
The benchmark Shanghai Shenzhen CSI 300 index has accordingly gained 23% since hitting a trough in August.
Individual foreign investors are barred from trading Chinese "A" shares but may buy into China funds offered by some of the 277 offshore institutions with foreign currency quotas from Beijing for equities trade.
Offshore investors can invest, for example, in the Invesco China Focus Equity Fund or Goldman Sachs China Equity Fund Class "A" Shares (GNIAX) . Exchange-traded funds include the iShares FTSE/Xinhua China 25 ETF (FXI - Get Report) and the KraneShares Bosera MSCI China A ETF (KBA - Get Report) .
Stubborn bears aside, a few young bulls are being born. Some investors take China's broad crackdown on corruption as a sign of a cleaner market. Blue chips, banks and telecom firms are trading at "good value" despite higher prices among smaller-cap stocks, said Michael McGaughy, a personal investor working in Hong Kong's finance industry.
Stocks may peak in the first quarter of 2016 on "destocking" after the long Lunar New Year holiday in February, said Andrew Tsai, economist with KGI Securities Investment Advisory in Taipei. Foreign institutional funds would buy blue chips into the second quarter but high-valuation, high-growth shares would face selling pressure, he said.
"Money can be made investing in 'A' shares but only tactically," said Alicia Garcia Herrero, chief Asia-Pacific economist with French investment bank Natixis.