The deleveraging of the Chinese economy has always seemed likely to be a long and troublesome saga, lasting many years or even decades if it is to prove successful. The latest episode involves a sudden collapse in domestic “A” shares, which have dropped by 19 per cent in less than a fortnight, and have triggered what has been widely described as an “emergency” easing in monetary policy this weekend.

The dramatic nature of the setback in share prices in the past two weeks is shown in two red bars (or “candles”) on the right of the first graph. As often occurs during a bubble, volatility has increased sharply as the Bollinger bands have widened, and many recent entrants to the market will have been severely hurt.

The story is far from over: bubbles often last for two or three years, and we cannot rule out the possibility that new highs will be seen in coming months. What we can say, however, is that market volatility is likely to stay dangerously high for quite a while, making this a very speculative market for Chinese residents to enter.