Recently, the Chinese stock market has been in full swing, attracting a large number of investors to "rush into the market". How high can this rebound go? Can investors chase high prices? We can learn from the performance of the Japanese stock market after the collapse of the bubble economy and explore the current situation and potential risks of the Chinese stock market.

Japan's bubble economy occurred in the late 1980s and early 1990s, when real estate and stock prices rose rapidly, eventually collapsing in 1990 and entering the "lost decade". Currently, the Chinese economy is also facing some similar macroeconomic conditions as Japan did back then, such as high leverage and volatile market sentiment. The Nikkei 225 Index, the main benchmark of the Japanese stock market, reached 38,915 points at the peak of the bubble (December 29, 1989), but the index fell sharply in the following years as the bubble burst. After the Japanese bubble economy burst, the stock market experienced several rebounds, but the gains of each rebound failed to make up for the huge losses before. Here are several important rebounds and their gains.

1. Four rebounds of the Japanese stock market

1. 1993-1996: The first rebound

  • Starting point: The lowest point in 1992 was about 14,000 points

  • High: around 20,000 in 1996

  • Increase: About 43%

  • Features: After a sharp decline, this rebound was mainly due to the economic stimulus policies adopted by the Japanese government, but the rebound was limited, market confidence was insufficiently restored, and economic structural problems still existed.

2. 2000: A tech bubble-driven rebound

  • Starting point: The lowest point in 1998 was about 12,000 points

  • High: ~20,000 during the tech bubble in 2000

  • Increase: About 67%

  • Features: This rebound was mainly driven by the global technology stock bull market. However, due to Japan's own economic problems, this rebound was driven by external factors, and endogenous economic growth was still weak. After the tech bubble burst, the Nikkei index fell again.

3. 2003-2007: A global bull market-driven rebound

  • Starting point: The lowest point in 2003 was about 8,000 points

  • High: 2007, around 18,000

  • Increase: About 125%

  • Features: This is the largest rebound since the bubble burst, with the Nikkei almost doubling, thanks to the global economic recovery and Japan's export growth. However, despite the impressive rebound, the Nikkei is still far below the 38,915 points at the peak of the bubble in 1989.

4. 2009-2010: Rebound after the financial crisis

  • Starting point: The lowest point during the 2008 financial crisis was about 7,000 points

  • High: 2010, around 11,000

  • Increase: About 57%

  • Features: After the global financial crisis, the Nikkei index rebounded from its historical low for a period of time. Although the increase was large, it still reflected the economic uncertainty and the weak global economic recovery.

2. Summary and enlightenment of rebound

The average increase of these four rebounds is 73%. At present, the Chinese stock market has rebounded by about 40% from the low point. It is still a little far from the average level, but it is very close to the lowest of 43%. If calculated based on the highest increase of 125%, then This rally is just getting started. Although the gains in each rally were significant, they failed to significantly improve long-term market performance compared with the overall decline after the bubble burst. Especially after experiencing a relatively large rebound from 2003 to 2007, the Nikkei still failed to break through the 20,000-point mark, and after each rebound the market fell into a downturn again due to global or domestic economic problems. These rebounds more reflect the market's optimistic expectations for short-term policies or the external environment. However, due to the long-term structural problems of Japan's economy, such as deflation and population aging, the stock market has always been difficult to return to the level before the bubble burst.

Japan's historical lessons remind us that although market sentiment may be optimistic due to short-term policies or external environment, in the long run, if economic structural problems are not effectively resolved, the sustainability of the rebound will face challenges. The key thing that the Chinese market needs to focus on is how to balance short-term stimulus with long-term economic health and ensure the stability and sustainable development of the stock market.