How could a stock market correction impact ASX 200 bank shares?

How would ASX 200 shares react to a stock market correction?

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The S&P/ASX 200 Index (ASX: XJO) was the talk of the town on Monday after a 2.1% slump to start the week and kickstarted fears of a stock market correction. Shares in Commonwealth Bank of Australia (ASX: CBA) fell 2% lower while Westpac Banking Corp (ASX: WBC) finished the day down 2.2%.

Markets wobbled on Monday as news of Chinese property developer Evergrande's struggles emerged. That has put pressure on the Aussie market as some investors get skittish about the potential knock-on effects.

While there are no signs that a stock market correction is on the way just yet, let's take a look at how ASX 200 bank shares have performed under similar circumstances.

How could a stock market correction impact ASX 200 bank shares?

Rewinding the clock back to March 2020, the ASX 200 was in a bear market. Australia and New Zealand Banking Group Ltd (ASX: ANZ) and National Australia Bank Ltd. (ASX: NAB) shares slumped 41.2% and 42.9% respectively, in the space of a month.

That was fuelled by the emerging COVID-19 pandemic and unprecedented restrictions on global movements. Investors feared an economic collapse and severe damage to the global and Aussie economies.

However, that stock market correction was short-lived. In fact, ANZ and NAB shares have rocketed 69.4% and 74.6%, respectively, since March 20 2020.

Before COVID, there was the 2015 crash in ASX 200 bank shares. The CBA share price lost 25% between March and September 2015 amid fears of slowing economic growth in China. Similarly, Westpac shares also shed more than 25% as investors sold down once again with expectations of an economic flow on effect for Australia.

Who can forget the 2007/2008 Global Financial Crisis (GFC). The GFC represented one of the largest stock market corrections of all time. ANZ shares slumped 60.9% between October 2007 and February 2009 as ASX 200 bank shares were hit hard.

However, despite bottoming out at around $12 per share, the ANZ share price has recovered to its current $27 per share mark.

Foolish takeaway

Stock market corrections are part of the investing life cycle. Investors may be jittery at the moment as the world waits to see what happens with Evergrande.

However, ASX 200 bank shares have crashed before and recovered. No one knows when the next stock market correction will occur, and whether this will be just a blip on the 10-year share price performance chart or the start of something bigger.

Experienced investors know to keep their eyes on the prize and align with their investing strategy to drown out the noise and make informed decisions.

Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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