Beijing measures get backing from world’s top investors

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