We’ve seen a very fast rollover in the Chinese market from the decent 15% bounce from the bottom – the extent of the move shows that investor confidence is still febrile.
There’s every chance that the Shanghai and Hong Kong markets will return to the lows, and I can see them bouncing around like this until September. There is obviously a chance of going to a new low – if this happens then a fall to 3,000-3,300 seems possible on the Shanghai exchange.
However, on past experience, the government will react quickly. Investors should still view this summer as a good opportunity to research ways to invest in China, as I discussed recently in MoneyWeek magazine.
The flash PMI (purchasing managers’ index) economic data out at the start of this week, showing weakness in the manufacturing sector, was not good. But it’s a volatile, early data point. At worst it will bring on more monetary easing and fiscal stimulus, and at best it will be revised up when the official data comes out.
I do not believe China is slipping into recession. The property market is bottoming, as is other consumption data.
Meanwhile, Goldman Sachs estimates that $700bn-$800bn in capital has left China in the last year. This sounds unnerving, but reflects the newfound ability for the Chinese to move money without as much censure, plus the anti-corruption drive.
This movement has fanned property markets from Sydney to London, and will continue to do so. China is still running a big current account surplus so its foreign currency holdings are still rising.