Over the past few weeks, the Shanghai Composite index has fallen by around 28 per cent from its June 2015 high. The following graph illustrates the fall.

However it also highlights that over the previous 12 months, the Shanghai Composite index has appreciated close to 150 per cent. To put this in perspective, the recent falls have only brought this index back to levels seen in March of this year.

Australia does not have large amounts of investment in the Chinese stock market, or the property market, therefore falls in their sharemarket should not have a significant effect on us. However there could be short term volatility – we are already seeing flow on effects to commodity prices in Australia. The iron ore price last week fell to below $50, putting the share prices of our biggest miners, namely BHP Billiton and Rio Tinto under pressure.

In order to stem the falls, the Chinese government has been implementing several policy measures in an attempt to support share prices. And while the Chinese sharemarket has seen a big sell off, China’s Gross Domestic Product (GDP) growth seems to be on track at around 7 per cent per annum.

So what does the recent volatility in Chinese stocks mean for Australian investors?

These type of market events can often frighten investors. My advice is that investors refrain from making any rushed decisions and instead consider their long term strategy, ensuring it is on target to meet their long-term goals and objectives. It is unwise, and can be dangerous, for retail investors to make significant changes to their long term investment strategies based on short term macro-economic events.

If investors do however decide to make changes to their portfolio, it should be done after careful consideration and consultation with a trusted adviser, rather than relying on media headlines. 

I suggest investors take a leaf out of Warren Buffet’s book, and “Be fearful when others are greedy and greedy when others are fearful”.

As always, Hewison Private Wealth recommends that our clients take a long term investment approach and do not make any investment decisions based on short term macro-economic events.

The information provided above is general information only and individuals should seek specialised advice from a qualified financial adviser. Please contact Hewison Private Wealth for more information.