How worried should you be about Chinese property developer Country Garden suspending trading in some bonds and potentially defaulting on payments?

To many investors the fortunes of a single real estate firm on the other side of the world might not seem that material. However, Country Garden’s woes are reflective of wider issues and we have been here before with China’s property market.

Eight years ago, in August 2015, at least some of the seeds of a currency and stock market crisis in the world’s second largest economy, which led to widespread selling of equities across the globe, could be found in the real estate space.

To quote an oft-used phrase – history does not repeat itself, but it can rhyme – and the sharp increase in interest rates in the last 18 months or so has already created stress in the financial system, evidenced in the collapse of Silicon Valley Bank this March.

We cannot rule out further episodes and as David Jane, multi-asset manager at Premier Miton Investors, observes it could be hard to see these coming. He says: ‘A further credit event, by its very nature, will be unpredictable, those with terminal financial issues do not tend to highlight the fact. We can point the finger at a number of areas of concern, such as the US commercial property market and that market’s impact on the US regional banks.

‘Lending to the Chinese residential developers is another obvious example. The reality is these things tend to creep up and then spiral out of control. Certainly, a further credit event is a possibility, conditions are tight, areas of the US economy are weakening and internationally, particularly in Japan, central banks seem much less in control than the past.

‘The major difference from the 2008 crisis is that not only is private sector indebtedness higher, government borrowing and deficits are already very extended. The potential for a meltdown is there, but that does not make it certain or even likely. We have to be prepared to act appropriately if things materialise.’

This is a relatively gloomy take, as another difference from 2008 is big banks in the West are better capitalised than they were, but it is worth investors being aware of the risks. These can be exacerbated during the summer when trading volumes are lower as people take their annual break and a spate of selling can have an outsized impact.

If there is a period of volatility then it is important not to overreact. In the same way as you should not get carried away by market hype, you should not be swayed by market panic. So long as you have time on your side, you should stick to your long-term investment goals and try and block out the day-to-day noise.

Remember, if you sell when the market is falling you could miss out on any recovery when it comes and several studies have shown that some of the stock market’s very best days come when it is rebounding after a sell-off.

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