By Karin Strohecker
LONDON (Reuters) - Three years after a financial shock in China rocked world markets, a slower-motion 20 percent reversal of China's main stock index and the yuan's worst month on record have had much less of a viral effect around the globe.
Rather than the bolts from the blue investors endured over the past decade, Chinese market adjustments this year feel more transparent and akin to those in other developed markets.
That in part reflects a greater maturity of Chinese markets, defter control by Beijing authorities and the more resilient world economy.
A rapidly escalating trade dispute between Washington and Beijing that risks exaggerating the steady deceleration of China's rapid national output growth has taken its toll on Chinese assets since the first quarter.
In June, some mainland indexes (CSI300) recorded their biggest fall since January 2016, when the bursting in June 2015 of China's stock market bubble eventually spilled over into global markets.
"The bubble in 2015, that level was during a period of high euphoria, high speculation," said Douglas Morton at Northern Trust (NASDAQ:NTRS) Capital Markets.
At the time Chinese main indexes traded more in value than any other single index in the world, including the S&P 500 or Japan's Topix, he added.
(Graphic: China Stocks Volumes - https://reut.rs/2NRhsoG)
"We are a long, long way off that at the moment, and the renminbi and the Chinese stock market has been relatively mature at this point," he said, adding the lack of tampering by authorities in both currency and stock markets had also provided some reassurance.
In June and July 2015, China's Shanghai stock index (SSEC) lost more than a third of its value in just over two weeks. Both equity and debt markets suffered hefty outflows in the following months, according to data from the Institute of International Finance (IIF).
In recent months, China's equity markets have seen steady inflows, underpinned by MSCI's decision in June 2017 to include yuan-denominated Chinese stocks, known as "A-shares", in its widely tracked emerging market index.
(Graphic: China fund flows - https://tmsnrt.rs/2KNxHRB)
With the trade spat between Washington and Beijing escalating in recent weeks, the IIF found non-resident portfolio equity flows had ground to a "sudden stop" in late June. But while overseas investment in Chinese shares has been on the rise, the share held by foreigners remains relatively small and high domestic retail participation in China's local stock market provides some extra protection.
(Graphic: Daily non-resident portfolio equity flows - https://reut.rs/2NJhU8h)
The broad and deep economic recovery seen in the past few years has helped further diminish the prospect of sudden falls in China impacting other markets.
"Contagion happens not because of equity markets, contagion happens because of the real world," said Paul Donovan, chief economist at UBS Global Wealth Management.
"The key thing about the last couple of years would be that European and U.S. domestic demand has really picked up, Asian domestic demand has started to pick up -- and this is something that mitigates a lot."
(Graphic: World Stocks and China Equity Indexes - https://reut.rs/2JiNlmr)
China's currency has been another flashpoint in the puzzle that keeps investors preoccupied. In 2015, just two months after the stock market bubble burst, China's central bank devalued the yuan by nearly 2 percent.
While the yuan has weakened in recent weeks both against the dollar and against a basket of currencies of its main trading partners, drawing a parallel with the sharp move three years ago does not take into account the prolonged emerging markets crisis of the time, said Zhou Hao at Commerzbank (DE:CBKG) in Singapore.
Few fear China could see a "hard landing" -- a specter that haunted markets in 2015. And yuan weakness is deemed to be a policy-loosening tool, alongside targeted reserve requirement cuts, while the increased access to onshore markets for foreign investors and a falling offshore yuan pool has made betting against the currency an expensive business.
But recent moves have sparked concern among some fund managers, said Benn Eifert, chief investment officer at QVR Advisors in San Francisco.
"There are investors who look back and see a lot of parallels to the third quarter of 2015, which started out this way, with kind of a long-trending decline in Chinese equity prices and then some rapid devaluation of the yuan. And that cascaded through global markets and led to a pretty big selloff," said Eifert.
"You do see just general concern about what exactly is going on over there."