Investors told to wait for China stock market correction

But the Chinese market has also tumbled in the period because of both fundamental and technical factors. 

The fundamentals include the meagre signs of an economic recovery while Chinese stock-market prices have soared and relatively high valuations compared with other countries. 

The technical factors include the major increase in retail investors in the Chinese market and the use of margin accounts that are higher than 3.5 per cent – higher than those of the Japanese and US markets – which prompted some deterrence from the Chinese government. Meanwhile, a large number of initial public offerings temporarily pulled liquidity away from the market. 

Foreign investors have moved capital out of China because its main stock index is not yet part of the calculation for emerging markets of MSCI. Yet another technical factor is the perceived effects of a rise in US interest rates. 

Asset Plus Fund Management, however, believes these retardant factors are short-lived. The stock-market corrections will help prevent bubble effects in the Chinese market and put valuation at the optimum level. 

The Chinese stock markets still retain some attraction, thanks to a good investment outlook in the medium and long terms. Despite the current slowdown in the Chinese economy, the latter half of the year will see some improvement that stems from a monetary-easing policy that has so far in 2015 lowered the interest rates three times, totalling 75 basis points, and they could go even lower. 

Apart from this, the serious economic reforms that have been going on for some time will shift the Chinese economy from one based on labour and exports into one that is based on technology, services and consumption. 

Within 10 years, such reform could very well put the Chinese economy ahead of that of the United States. Chinese consumers and tourists will be setting the global trends. The yuan might become another currency banks around the world opt for as a reserve currency and might be widely accepted for payments. Large Chinese companies would go beyond basic consumer goods into complicated and research-based technological businesses. 

All these factors will continue to drive the Chinese stock markets into further growth. It can then be said that the Chinese market, after the correction creates optimal valuation, will attract investors. Once it enters the FTSE and MSCI index calculations for emerging markets, even more investors will be attracted.

Despite the short-term volatility in the Chinese market that investors will need to be more careful about, Asset Plus Fund Management believes that the Chinese economic and stock-market developments are set to bring some good returns for investors in the longer term. 

For those who would like to diversify their investments or increase their exposure in Chinese markets, many choices are available, of which the easiest would be with funds investing in an index ETF (exchange-traded fund), which replicates returns of the Chinese stock market. 

Investors can go for the indices with diversified stocks such as the CSI300, which from the beginning of the year has given a return of 17.55 per cent, Bloomberg has reported. This index consists of stocks of 300 companies with large market capitalisation that trade on the Shenzhen and Shanghai stock exchanges. They have a high level of liquidity and cover many industries. 

Asset Plus Fund Management plans to introduce a new fund that invests in the above-mentioned ETFs, creating more opportunities for investors to access the Chinese market. 

Investors should thoroughly study the product features, possibility of returns, and investment risk before making a decision. 

 

This article was contributed by Asset Plus Fund Management. For more information and the prospectus, contact the firm at 02-672-1111.