New Year, new market?
Those investors hoping to see the last of the negative impact of China’s markets on the global marketplace were disappointed the first week of 2016.
Global financial markets saw a start to the year which reflected heightened concerns about the health of the Chinese economy, renewed weakness in oil prices, and elevated geopolitical tensions.
The on-shore Chinese equity market (the CSI300) had its worst-ever start to the new year, with two circuit breakers – a mechanism which suspends trading in stocks, options and stock futures for 15 minutes if the CSI300 index rises or falls by 5%, and for the day if they change by 7% or more – invoked in the first four trading sessions. The fall was sparked by fears of a stock-selling spree following the January 8th expiration on the stock-selling ban, and concerns over the depreciation of the Chinese currency, ren min bi (RMB) against the strengthening US dollar. The Chinese equity market prompted declines in the MSCI World index, the Developed Markets MSCI index, and Emerging Markets MSCI index. However, Chinese authorities have stepped in to stabilize the market, and in addition new rules have been implemented to prevent a sudden reduction of holdings by large shareholders. In the second week in January, the Shanghai Composite Index continued to slide, but Asian markets rose as China’s yuan steadied.
While China’s growth is expected to be slow, there will likely be ongoing consumer strength, says Michael Reynal, a portfolio manager at RS Investments in San Francisco, California. He suggests that reforms in the fiscal, social and enterprise levels of the Chinese economy are results in the opening of the market.
Experts such as HSBC Global Asset Management believe that, while Chinese/Asian markets will likely remain volatile in the near term, Asia overall is well-positioned to manage market volatility.
On the other hand, the fundamentals of the U.S. economy are good, as seen in the 292,000 jobs U.S. employers added in December. And China’s impact on the U.S. is still small – U.S. exports to China last year were less than 1% of gross domestic products.
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