27 July 2015

Today's China Stock Market Rout

The Shanghai stock market fell today by nearly 8.5%, resuming a slide that began in June. The China exposure in our portfolios is to the offshore H-share market which continues to trade at a historically large discount to the onshore A-share market. In addition, the exposure is through a diversified Asia-ex-Japan allocation. Whilst we still view Asia favourably from a fundamental valuation and growth perspective, we are wary of the continued rout in Shanghai as this creates contagion and fuels negativity in other Asian markets. We have an eye on our Risk Matrix and would reduce immediately should market conditions deteriorate further.

Interestingly, Business Times today ran an article - "When a Giant Sneezes" - as part of their Views from the Top series, where they got CEOs in Singapore to share their views on the consequences of China's recent stock market crash. Our CEO, Mr. Goh Yang Chye, was also quoted in this article.

The unedited version that was sent to Business Times was as follows:

"The Chinese stock market does not play a big role in many households, making up an average of 15% of total assets. Whilst the sell-off likely hurt sentiment, it should not detract from the fact that recent data releases suggested that growth is stabilising. Retail sales, Industrial Production, Harbour and Freight Traffic, and leading indicators suggest a broadly improving economic environment."

"In addition, total social lending increased and real estate picked up around the same time the market was doing poorly showed that the central government's efforts to stimulate the economy had positive effects. With homeownership rate at 90%, a real estate collapse would have far wider implications than a stock market rout. We should not take the Chinese for granted, and remain confident that they can achieve their targeted growth rate for the year."

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