• 07/12/2017

Market Pulse – China

Market Pulse – China

BY bm editor

Michael DAI,
Senior Economist,
Bank of China (Hong Kong)

YING Jian,
Senior Economist
Bank of China (Hong Kong)

Jack YANG,
Division Head, RMB Business Division,
Bank of China (Hong Kong)

1. The Shanghai Composite Index has already dropped almost 40% since June. Are the fundamentals still strong for the market?

The volatilities seen in the stock market have something to do with leverage and deleverage, while the Chinese economy is bottoming even without major policy stimulus. The tradeoff between structural reform and growth speed continues. Given time, the Chinese economy will embark on more sustainable growth track, and the Chinese stock market will find its real footing.

2. The government has implemented policies in reaction to the market tumble, but do not seem to be effective. Do you see the policy risk higher now after the tumble?

The government has stepped in to support the stock market when there are legitimate concerns of potential systematic risks to the whole financial system. But there will come a time when an exit strategy will be executed, after which policy risk will revert to minimum level.

3. Recent sudden devaluation of the RMB by the PBoC has triggered global market turmoil. Would the stock market’s volatility affect the pace of the internationalization of RMB?

The country’s stock market plays a smaller role in its economy and has fewer linkages to the rest of the economy. The systemic risk is manageable. So this current issue will not delay the liberalization of the RMB or the opening up of the capital market. However, it’s difficult to fully relax such regulations in the short term due to the financial risks.BM