Chinese inflation adds to Far East stocks’ unease

John Ford, Asia Pacific chief investment officer at Fidelity International, said this morning that higher than expected Chinese consumer price index (CPI) figures for July added to the unease continuing to hit the region’s stock markets.

“The further large falls we saw in Asian markets this morning reflect a combination of investor panic following the heavy falls overnight in Europe and Wall Street, together with significant volumes of forced selling from margin calls and fund redemptions,” Ford said.

“Sentiment since has turned slightly more positive, with indices recovering from their intra-day lows and clear evidence that investors are now bargain hunting. Asian stock valuations – already at multi-year lows – have become cheaper still, and at these levels there are many stocks which look attractive on any valuation measure, even allowing for the prospect of slower than previously hoped for economic growth in Asia as developed economies are forced to tighten their fiscal belts.”

“Adding to investors’ concerns was a slightly higher than expected Chinese CPI number for July of 6.5% y-o-y. However, with falling food and other commodity prices and slowing global economic growth expected to have a positive impact on inflationary pressures, I expect Chinese inflation to establish a clear downward trend over the coming months which, in turn, will enable the authorities to start relaxing their current tight policy stance. It is worth noting that, in general, China’s CPI lags monetary policy measures by 6-9 months as it takes this amount of time for such measures to flow through to the real economy.”

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