What impact will the volatility in the Chinese share market and economy have on your portfolio?

Author -  Keith Poore, Head of Investment Strategy

Chinese share market and economic volatility will have an impact on New Zealand investment portfolios, but this is expected to be modest.

China represents about seven per cent of the global share markets and less than two per cent of Spicers balanced fund equity exposure, but it also accounts for more than 15 per cent of the global economy.

In essence this means that any concerns about the region’s economy will flow through to share markets globally and hence portfolio returns, but this would be the case even with zero China equity exposure.

Keith Poore, Head of Investment Strategy at AMP Capital, says China is very much a confidence question at the moment as markets try to predict whether events in China are a speed bump or a hard landing, and it is this ‘confidence’ element that has the ability to affect New Zealand’s share markets and the global economy.

“However, we think it is just a speed wobble because China is now entering a transition phase. Let’s not forget that we have seen unprecedented growth in that country as they went after the easy wins, like investing in modern industry, building and infrastructure.

“Now it’s time for the economy to move up the value chain to more of a service orientated economy. The International Monetary Fund ran a health check on China recently and said pretty much what we were thinking, that the slow-down was partly manufactured by the Chinese authorities because they couldn’t maintain the old growth model. To do that they re-aligned some of the lending growth, which slowed the economy, but will make it more stable going forward.

“This means they’re simply putting less investment into unproductive assets and concentrating instead on productive assets like the right infrastructure and profitable manufacturing and industry,” Keith said.

Many people forget that a few decades ago China was largely Communist and what happened there would not have had very much impact at all, but in a short space of time the country has grown to represent a third of global growth – including overtaking Australia as New Zealand’s number one trading partner.

“It’s close to an economic miracle. We’ve seen things like a massive population moved out of poverty into the middle class, all without any real shocks of negative ramifications globally or domestically.

“They are now simply moving onto a slower growth path. The authorities in China have the wherewithal and firepower to make sure that it does not become anything more than a wobble.

“China’s fiscal and debt situation is much healthier than many other economies, and they have a war chest of international reserves (principally US dollar treasuries and Eurozone Government Bonds – that they can call on.”

What impact will the volatility in the Chinese share market and economy have on your portfolio?

Chinese share market and economic volatility will have an impact on New Zealand investment portfolios, but this is expected to be modest.

Chinese share market and economic volatility will have an impact on New Zealand investment portfolios, but this is expected to be modest.

China represents about seven per cent of the global share markets and less than two per cent of Spicers balanced fund equity exposure, but it also accounts for more than 15 per cent of the global economy.

In essence this means that any concerns about the region’s economy will flow through to share markets globally and hence portfolio returns, but this would be the case even with zero China equity exposure.

Keith Poore, Head of Investment Strategy at AMP Capital, says China is very much a confidence question at the moment as markets try to predict whether events in China are a speed bump or a hard landing, and it is this ‘confidence’ element that has the ability to affect New Zealand’s share markets and the global economy.

“However, we think it is just a speed wobble because China is now entering a transition phase. Let’s not forget that we have seen unprecedented growth in that country as they went after the easy wins, like investing in modern industry, building and infrastructure.

“Now it’s time for the economy to move up the value chain to more of a service orientated economy. The International Monetary Fund ran a health check on China recently and said pretty much what we were thinking, that the slow-down was partly manufactured by the Chinese authorities because they couldn’t maintain the old growth model. To do that they re-aligned some of the lending growth, which slowed the economy, but will make it more stable going forward.

“This means they’re simply putting less investment into unproductive assets and concentrating instead on productive assets like the right infrastructure and profitable manufacturing and industry,” Keith said.

Many people forget that a few decades ago China was largely Communist and what happened there would not have had very much impact at all, but in a short space of time the country has grown to represent a third of global growth – including overtaking Australia as New Zealand’s number one trading partner.

“It’s close to an economic miracle. We’ve seen things like a massive population moved out of poverty into the middle class, all without any real shocks of negative ramifications globally or domestically.

“They are now simply moving onto a slower growth path. The authorities in China have the wherewithal and firepower to make sure that it does not become anything more than a wobble.

“China’s fiscal and debt situation is much healthier than many other economies, and they have a war chest of international reserves (principally US dollar treasuries and Eurozone Government Bonds – that they can call on.”

What impact will the volatility in the Chinese share market and economy have on your portfolio?
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