Why volatility in Chinese markets is a buying opportunity

8th January 2016


The tumultuous nature of China’s stockmarket may be scaring investors but it is also providing some important buying opportunities.


Nigel Green, chief executive of deVere Group, said investors need to gain stockmarket perspective after China’s seesawing index saw the biggest fall in the yuan, China’s currency, in five months, China suspended trading twice in one week, and global stockmarkets tumbled.


The Chinese index, the Shanghai Composite, has risen slightly today, taking European indices with it, and investors should not be worried about investment risk.


‘The devaluation of the yuan on Thursday got financial markets worldwide in a tail spin,’ said Green.


‘However, China’s seesawing market needs to be put into perspective.  The global sell-off this week was excessive and knee-jerk.


‘Global investors shouldn’t be focusing so intently on the Chinese stock market, as the direct international effect of falling share prices in China is minimal.  This is because there’s relatively little foreign money invested in Chinese stocks for it to be a major concern.’


Instead, he said investors should be focusing on the Chinese economy, the world’s second largest, as it is the economy that ‘ultimately affects the world markets and the world economy’.


‘The modest currency adjustment that triggered panic in the markets is a structured and necessary part of China’s transition from an export-led economy to a more consumer and services-driven one,’ said Green.


‘The Yuan had risen considerably which was eroding China’s competitiveness and was contributing to the slowdown in the country’s export trade.’


He added that the depreciation will help ‘boost the exports of the world’s second largest economy and help its international trading partners, thereby supporting the global economy’.


Investors should also remember that while China’s economy transitions, the economic data – such as recent manufacturing figures – is likely to be weak but there is still considerable consumer spending power and the authorities have the tools to boost this.


‘The slowdown in export can be somewhat controlled,’ said Green.


‘As such, the threat of a ‘hard landing’ remains unlikely.  Indeed, I believe that economic growth is likely to increase this year, but it is a few months away yet.’


In the meantime, investors should expect more volatility while China transitions and recognize ‘volatility presents important buying opportunities for medium to longer-term investors’.





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