According to an analysis of CNBC, China's once-sizzling stock market entered correction territory as its 2 percent-plus slump on Friday left it more than 10 percent down from its early June peak, but strategists were sanguine on the market's longer-term outlook.
"After rising 140 percent over 12 months and around 50 percent year to date such volatility is to be expected as it has risen a bit too far too fast," said Shane Oliver, head of Investment Strategy and Chief Economist at AMP Capital.
Based on intra-day trading on Friday, the Shanghai Composite (SHCOMP:IND 4,481.22) had slid as much 10.7 percent since June 12, when the benchmark index hit a seven-year high of 5,178.19.
"The easy gains are probably over and a period of correction would be healthy," Oliver said.
Despite the recent downturn, catalysts for further gains remain in place, say market watchers. Oliver cites the potential for further monetary easing as well as valuations as potential drivers.
The ongoing trend of Chinese households reallocating their assets - away from real estate and wealth management products and into equities – will also help sustain the rally in the medium term, said Ben Bei, an analyst at CIMB.
„But the experience during the 2006-07 cycle suggests that the following indicators may be worth looking at: 1) divergence of market turnover and index, 2) divergence of index and majority stocks, 3) index return mostly contributed by large sectors such as financials and energy."
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