BoAML agrees, adding: “We believe that the biggest damage caused by the A-share market’s roller-coaster ride since the middle of last year has been to investors’ faith in the government’s ability to manage asset prices (stock, RMB, debt and even property) reasonably smoothly.”
“The difficulty the government has faced to stabilize the stock market has demonstrated the downside of that faith. As a result, we expect many of these assets to be re-priced lower going forward. Also, the ripple effect from the market correction has yet to show up – we expect slower growth, poorer corporate earnings, and a higher risk of a financial crisis.”
There are those, however, that see things slightly differently. Tai Hui, Chief Market Strategist for Asia, J.P. Morgan Asset Management, says that the recent events could lead to even further market liberalisation as the benefits of investor diverisification have been brought into sharp relief.
“While the Chinese authorities have been concerned with foreign investors introducing additional volatility to its financial markets if the capital account is opened too quickly, the latest episode should reflects the benefits of having a more diversified investor base, including foreign institutional investors,” Hui said.
Adding: “While it is difficult to draw a line on when this volatility will calm in the near term, there are still merits we see in investing China for the long term, as structural developments such as middle class consumerism, the One Belt One Road initiative and policy drive for environment protection and renewable energy are important investment themes.”
Hui is also of the view that. despite the recent volatility, Chinese A-shares remain ontrack for inclusion into global emerging market benchmarks.
