The Chinese stock market crash, at first mistakenly identified as merely a “healthy clearing of froth”, triggered volatility in markets across the region and continues to gain momentum.
“Black Monday”, as the event was nicknamed by “People’s Daily”, the Communist party’s newspaper, was the culmination of a week of the biggest declines witnessed on the Shanghai Composite Index. In an attempt to ease the crisis, China’s central bank intervened by lowering interest rates as well as increasing the amount of money available for lending by reducing the reserves that banks were required to hold.
Whereas European institutional exposure to Chinese equities is relatively limited, European stock exchanges are already down 4 to 5% and the volatility surrounding stock markets extends beyond them. Long –term and institutional investors are being urged not to overact as the domino effect would be devastating.
A spokesperson from APG, the asset management firm who manages the Dutch civil service scheme ABP, believes that worrying does not help. Drops in certain asset classes are often offset by better results in others and should be assessed in the context of the entire investment portfolio and pension fund’s long term liabilities, as Funds Europe reports.
Even though there is a sense of relief at the moment, apprehension is still the watchword and investors continue to sell as confidence was (yet again) broken. Some seem to blame the Chinese government for its “attempts to cushion the blow through monetary policy and market manipulation that haven proven unsuccessful”, stresses a manager at Newton Investment Management. The devaluation of the yuan on August 11th took everyone by surprise and global stock prices have been very low since, with the government failing to unveil new market interventions to push forth equity prices.
In the media here.