Carnes: Chinese stocks will reach new highs in 12 to 18 months AFP/Getty ImagesSometimes it is all about perspective.After an extremely volatile summer, the Chinese stock market is in the awkward position of being in both bull- and bear-market territories. As of Wednesday, the Shanghai stock index SHCOMP, -1.43% is up 24% from its trough on Aug. 26 but down 30% from its June 12 peak, highlighting the crazy mood swings that one of the world’s largest stock exchanges has undergone in the past few months. Michael Batnick, director of research at Ritholtz Wealth Management, was one of the first people to point out China’s rather confusing, if not contradictory, status in a tweet last month. “The tweet was mostly just poking fun at the obsession with labeling different market environments,” Batnick told MarketWatch. For the year, the benchmark is up 13%. By definition, a bull market is when the index is up 20% from its recent low and a bear market is when it is down 20% from the peak. The selloff in the stock market and tepid economic data have stoked fears that all isn't well in China, battering global markets and contributing to the Federal Reserve’s decision to postpone its interest-rate hike. But analysts believe China has turned a corner for the time being. “I continue to think that the Chinese economy will strengthen next year and that stocks will reach new highs in 12 to 18 months,” said Jon Carnes of Eos Funds. The latest data show Chinese retail sales in October rose at their fastest pace this year, jumping 11% year-over-year, sparking optimism that robust consumption can help to temper the slowdown in the economy. “Many news reports continue to view China’s declining manufacturing numbers as a holistic representation of its entire economy,” said Brendan Ahern, chief investment officer at KraneShares. But the belief that China’s economy is single faceted often leads investors astray, according to Ahern. “Over the past year leading up to the peak of the onshore market’s rally, the China Internet sector, represented by the CSI China Overseas Internet Index, exhibited a low correlation to traditional sectors of China’s economy,” he said. Ahern expects the services sector, which surpassed the manufacturing sector as the biggest contributor to the GDP for the first time in 2012, will continue to outperform in the future. The Chinese government last week said it would maintain “moderately high growth” in the next few years but that gross domestic product growth must be maintained at minimum 6.5% annually for the country to meet its economic goals. The fact that the lower growth target was greeted calmly by the populace is a positive sign, said Sean Lynch, co-head of global equity for Wells Fargo Investment Institute. “Xi Jinping did a good job of managing expectations,” he said, adding that the acceptance of slower growth rate without a fuss shows that people are confident that things will be fine. Going forward, the Chinese government is expected to continue pressing ahead with reforms, including market liberalization and improving corporate governance, which will make the country more palatable to foreign investors. “I’m slowly selling out of the stocks I bought into the market strength and will look to buy again on any further weakness,” said Carnes. More from MarketWatch