Should global investors be so concerned about China?

On the back of today’s disappointing Chinese manufacturing PMI figures, Emerging Markets Economist Craig Botham focuses on the volatility and weakness that has been visible in China’s equity and currency markets since the start of 2016 and whether the concern it has led to amongst investors has been justified.

Craig argues that weakness in the equity markets does not point to weakness in the broader economy, and that the main risk that China poses to the world is related to its currency:

“The renewed market fragility is technical, not fundamental. Nor, as we pointed out last year, does poor performance in the equity market generate poor economic performance; wealth effects are much smaller than in the US given a much lower rate of share ownership.

“In 2015, at the peak of the bubble, equities accounted for 15% of total household assets, against 10% in 2014, and the slump will have seen levels fall back. As an indicator for global macroeconomic health, the Chinese equity market carries very little leading information.”

“We are not worried about equity market weakness in China, nor do we yet see the recent macroeconomic data as suggestive of impending collapse. The main risk posed by China to the rest of the world presently is currency weakness, given the deflation this exports.

“We do expect macro weakness to come back to the fore later in 2016 as stimulus effects fade, but still we would not regard this as signalling an imminent hard landing.”

Click here to read full analysis Craig Botham E&SV

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