OSAKA, Japan, January 25, 2016 /PRNewswire/ --
Taking a careful look around the global financial market place, it's exceedingly difficult to find any bourse that's in the green for the first few weeks of 2016. Of dozens of indices, less than 20 are in positive territory; of those, only Slovakia sounds even remotely familiar and even then, only to Europeans. It's up 5% year to date and represents one of the few bright spots.
In all the markets that actually count, US, UK, Germany, Japan and China - the streets are daubed in bright vermillion as investors question what is holding up stock values now the US Federal Reserve is finally pulling away the punchbowl of cheap money.
Nowhere is the paint perceived to be going on more thickly than it is in China. People are baffled as to how the Chinese markets can be going through another selloff so soon after the last crash in the summer of 2015. Many are asking . . . "Is the Chinese stock market broken?"
To answer that question, investors need to look more closely at the selloff and appreciate what it's going to require to stop it.
According to Michael Lambert, Senior VP with Osaka based Resona Corporate Partners, the policy divergence between the US and Chinese central banks' is at the center of the problem. On one hand, the Fed is moving into tightening mode; on the other, the People's Bank of China is weakening its currency as it deals with slowing growth that, despite the positive 6.9% GDP number reported over the weekend, is still the lowest rate in 25 years.
"When you have the world's second-largest economy tethered to the world's largest economy and they're heading in opposite directions monetarily, tensions are bound to ensue," explains Michael Lambert. The current selloff has its roots in what the PBOC did back in August: it suddenly devalued its currency as a half-hearted warning to the Federal Reserve which was preparing to hike interest rates.
The last six years have seen investors become particularly addicted to easy/cheap money delivered via quantitative easing policies but with the America program now withdrawn, only the ECB and the Bank of Japan are still printing. "Markets and investors are effectively going through withdrawal," says Michael Lambert.
"Resona Corporate Partners don't see this as a 2008-style crash but we do see it as canary in the coal mine. China's markets are volatile for a whole host of reasons, not least the prevalence of inexperienced retail investors who literally buy and sell on the word of local fortune tellers who predict they'll have 'good luck' if they buy on a certain day. During the days of Fed QE, there was so much liquidity flowing into Hong Kong and Shanghai via the big funds like BlackRock but with the end of QE, the rate hike and the prospect of more, that money's been pulled out and markets have fallen. Once US QE restarts which we believe it absolutely will do, normal 'service' in China's stock markets will resume," says Michael Lambert.
SOURCE Resona Corporate Partners