A: I think the market still is being driven by fear and rumour. Everyday retail investors are starting to trade based on what the guy next of them is doing or what they think that the government is going to do. What is key is that a lot of the wealthier investors have exited the market in the last three or four weeks and so a lot of the times right now, it is the everyday retail investors who are in their well mid-income level that have kept their cash in. So, when you see the market volatility, it is going to just get more because a lot of these guys are going to go in and out.
Sonia: You are saying it is the institutional investors, the high networth individuals (HNIs) that have exited the Chinese market and not the retail investors yet?
A: The high networth individuals, people where 10 million rmb which is about USD 1.8 million in assets invested in the market, when we interviewed them, a large portion of them had sold everything or sold large portions of their stock three or four weeks ago once the government intervened. That was their way to sort of take their wins over the last year without losing any more because it tended to be more the smaller players who started investing in April-May and they actually didn’t make as much money as the guys who are richer who probably were invested over year ago.
Latha: What is the view on the currency, left to itself, might it fall very sharply unless the PBOC intervened in favour of the currency?
A: I have always been arguing for many years now that the renminbi is actually overvalued and actually there could be depreciation if you are going to go to a free convertability and unpeg everything. The real reason is that a lot of Chinese want to be able to take their money offshore. They want to be able to invest in India or invest in the United States and they can’t right now because of the currency restriction.
So, I think the renminbi is overvalued about 6-10 percent. I don’t expect it to go up like this, drop like that and then next few months the government is going to intervene. They want to sort of have more of a stabilised rate but I don’t think that they were devaluing the currency to boost up the exports, I think it was partially that but I think a bigger part which moved towards more market reforms because they really want the rmb to become a reserve currency. If you see the International Monetary Fund (IMF) and a lot of the other governmental, non-governmental type organisations approved and applauded what China did with its currency last week. However, I don’t see a major slide any time soon.More at Money Control.
Shaun Rein is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers´request form.
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