The plunge, which came on the morning of 26 June and saw the Shanghai Composite Index fall 7.4%, follows the index experiencing its largest seven-day slide since the financial crisis, plummeting 13.3% the week before last.
Gary Reynolds, Courtiers CIO, believes that given the government’s apparent control over markets, investors should not be surprised.
“You cannot look at a communist-controlled country as a normal market,” he said. “One of the reasons that businesses have been doing well is that the government has been spending 48% of GDP on infrastructure investment, which is way above what it needs to be.
“Another aspect is that China has taken on a hell of a lot of debt since the financial crisis. Debt to GDP has risen very strongly, which is another feature of why China needs to rebalance.”
Ayesha Akbar, manager of Fidelity’s Open World Fund, agrees with Reynolds’ view that the share price slide did not exactly come of out left-field, but is decidedly sanguine.
“It is almost what we expected,” she explained. “The Chinese market is quite retail-driven and tends to move quickly based on views, so investors may have moved because they have seen the market rallying so much and people taking profit.”
“We have seen a lot of volatility in China over the last two weeks, some upside and some downside. China tends to be one of the more volatile markets within emerging markets and we have seen this before, so we should see more of this going forward and it is not something to be worried about,”Akbar added.
