Future for china is "broadly positive"

Photo: Aaron T Goodman

The future for China is "broadly positive", according to experts, following the shocking crash earlier this year.

Prices in Shanghai hit a six year high in the spring, with investors clamouring for more exposure to Chinese markets. The result was a climb of more than 59 per cent, but when the Chinese economy stumbled, the picture changed very quickly.
 
"While Europe and the United States were pumping money into the market to boost liquidity, China decided it needed to repatriate some of its capital, by selling off its US treasury holdings. This effectively began quantitative tightening and before long investor demand for Chinese stocks had plummeted, with values declining rapidly," recalls Nikolas Xenofontos, Director of Risk Management at leading online trading services provider easy-forex.
 
"As growth began to stall, with the purchasing manager's indices beginning to show contraction, the slides increased. Suddenly China's euphoric first half of the year had turned to a tale of shrinking trade data (both imports and exports) and tumbling prices. A wave of selling and negative sentiment in late August followed multiple attempts by regulators to stem the tide of stock liquidation."
 
With stocks dropping more than 43 per cent, the People's Bank of China cut rates once more, alongside its benchmark rate, and "Black Monday" saw the market crash severely.

The long-term outlook, though, "isn't too glum", says Nikolas.

"Chinese stocks continue to gyrate and it will be some time before they stabilise, but the long-term outlook isn't too glum. Certainly, China's economy is contracting, but GDP growth is still expected to be somewhere between 6.8 per cent (International Monetary Fund figure) and 7.1 per cent (World Bank figure) for 2015."

"The International Monetary Fund has projected that it will dip to a low of 6 per cent in 2017, before beginning to rise again. Even the OECD's long-term forecast doesn't see growth falling below 1.55 per cent in the next 45 years."