An unhappy New Year for Chinese equities

Chinese equities downChinese shares plummeted on the first day of trading for 2016, after data showed that the manufacturing sector had weakened for the fifth month in a row. This dip triggered China’s newly created circuit breakers, which halted trading as markets fell by more than 7%.

Sanjiv Shah, chief investment officer at emerging markets wealth manager Sun Global Investments, says that Chinese stocks are also weaker because markets anticipate the ban on short selling to be lifted next week.

He adds that China’s weakness has affected other indices in Asia with most markets down about 2% this morning.

Investors may also be nervous about the imminent expiry of a ban on stock sales by large shareholders, a measure put in place after last summer’s market rout, which saw the Shanghai Composite Index lose 45% of its value in a month.

The circuit breakers were introduced late last year in a bid by Chinese regulators to prevent panic selling after a series of large one-day losses during the summer.

However, others are less pessimistic by China’s start to 2016.

Matthew Sutherland, investment director for Asian equities at Fidelity International, says: “Equity markets in general are likely to be volatile this year – we’d better get used to it.”

He adds that this is particularly true of China and while China’s growth is slowing, the quality of the growth, more consumption and less debt-fuelled investment, is far more important.

“For equity investors, the really good thing is that the Chinese stock markets are very broad, which enables us to find lots of great bottom-up ideas irrespective of the macro environment,” says Sutherland.

©2016 funds europe