China's in a bear market. What else is new?

Key Points

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An investor in front of an electronic board showing stock information at a brokerage house in Fuyang, China, July 28, 2015.

Much has been made of the bear market in Chinese stocks which unfolded rapidly over the last one month.

But this shouldn't be a surprise to investors, China's stock market spends most of its time in a bear market.

The experienced 10 bear markets the last 25 years for a total of 188 months, according to Tom Lee of Fundstrat Global Advisors. That means it was in a bear market more than 60 percent of the time.

By comparison, the S&P 500 only had two bear markets over the same period for a total of 52 months, or 18 percent of the time, according to Fundstrat.

The firm defines a bear market as a decline greater than 20 percent.

So two conclusions:

1. China is one of the most volatile stock markets in the world because it is still a young institution with liquidity issues, extreme government intervention and a majority of trading coming from retail investors.

2. A China bear market does not lead to, or coincide with a pullback in U.S. stocks.

"There has never been a single instance of China triggering a U.S. bear market," wrote Lee in a report to clients Monday.

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The strategist's analysis notes that China's stock market drops are much more destructive than those that occur here.

The Shanghai composite fell an average of 49 percent during its bear market declines the last 25 years.

That means Shanghai—down 30 percent from its June high— could have farther to fall.

Even if the decline stretches to that magnitude, Lee notes that it doesn't necessarily mean horrible things for the Chinese and global economy.

Wrote Lee:

"The greatest risk is a spillover into the real China economy, that turns into a global recession. The losses since the peak are severe, at an estimated $1T in free-float losses (from peak) but the market is still up YTD by about 10 percent."

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