Bei­jing mea­sures get back­ing from world’s top in­vestors

New Straits Times - - Business -

BEI­JING: China’s es­ca­lat­ing cam­paign to clean up its fi­nan­cial sys­tem is win­ning plau­dits from some of the world’s big­gest in­vestors.

Tem­ple­ton Emerg­ing Mar­kets Group and Fidelity In­ter­na­tional are among money man­agers who’ve en­dorsed a raft of mea­sures from Chi­nese reg­u­la­tors over the past month to curb lever­age, boost trans­parency and pre­vent ex­ces­sive spec­u­la­tion. The in­vestors called on au­thor­i­ties to stick with their cam­paign even af­ter it sent lo­cal stocks to a three-month low and roiled domestic bond mar­kets.

Pro­po­nents of the clam­p­down say short-term mar­ket tur­bu­lence is a small price to pay for re­duc­ing the risk of a ma­jor fi­nan­cial blow-up in Asia’s largest econ­omy. In one sign that the re­form drive has fur­ther to run, Pres­i­dent Xi Jin­ping gave it a stamp of ap­proval by pre­sid­ing over a rare meet­ing with top fi­nan­cial reg­u­la­tors last week.

“We wel­come such a move and be­lieve this to be over­due,” said Tem­ple­ton Emerg­ing Mar­kets Group ex­ec­u­tive chair­man Mark Mo­bius. “If they are de­ter­mined to re­move sys­temic risk, this may only just be the be­gin­ning.”

Tight­en­ing the screws on a fi­nan­cial sys­tem flush with un­prece­dented lev­els of debt is fraught with risk. But Chi­nese lead­ers may feel the time is right to act af­ter an uptick in eco­nomic growth over the past two quar­ters and an eas­ing of trade ten­sions with the United States ad­min­is­tra­tion.

The au­thor­i­ties’ thresh­old for short-term mar­ket pain may be lim­ited. Sta­bil­ity has been the watch­word for Chi­nese pol­icy mak­ers be­fore a key lead­er­ship reshuf­fle at the 19th Com­mu­nist Party Congress later this year.

The Peo­ple’s Bank of China (PBoC) would likely step in to con­tain mar­ket tur­bu­lence as lever­aged in­sti­tu­tions pull back, said Mo­bius.

PBoC in­jected a net 70 bil­lion yuan (RM44.2 bil­lion) into the fi­nan­cial sys­tem via open mar­ket last week.

“China is mak­ing a se­ri­ous ef­fort to deal with ex­cess lever­age,” said Gene Frieda, a Lon­don­based global strate­gist at Pa­cific In­vest­ment Man­age­ment Co.

Frieda said the reg­u­la­tory clam­p­down had made it more cau­tious on China-sen­si­tive com­mod­ity as­sets, while Mo­bius said he was avoid­ing the na­tion’s smaller banks. Both in­vestors said losses in Chi­nese mar­kets were un­likely to spark global con­ta­gion, in part be­cause of the coun­try’s cap­i­tal con­trols.

The shake­out may even cre­ate buy­ing op­por­tu­ni­ties, ac­cord­ing to Fidelity In­ter­na­tional.

“If we see the mar­ket go down fur­ther, it could be an at­trac­tive level to buy,” Catherine Ye­ung, an in­vest­ment di­rec­tor at Fidelity In­ter­na­tional. Bloomberg

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