While some experts believe that China is still on course to become a more market-friendly economy, others are more guarded on its prospects, following the recent bout of market volatility sparked by fears that China’s growth is falling.
Despite its size, China is not yet able to speak to the global financial markets according to Schroders co-head of emerging market debt, James Barrineau. He said that this is a stage that emerging markets often reach and while little short-term progress on issues such as better economic data and better communications of its policies and interventions into the markets is expected, he said that China would adapt in the medium term. Barrineau commented: “The signposts we are watching for are centred around credible policies, intelligently delivered, and well-explained rationales for current policies. These are not insurmountable hurdles and we cannot see why China is destined to drag global markets into a recessionary abyss, as some have suggested.”
However, Salman Ahmed, Global Strategist at Lombard Odier Investment Managers, said recent events have increased the threat of tail risk from China, from 10% to 15%, and he remained negative on exposure to China risk. Looking at the wider picture, Ahmed said that the massive increase in leverage after 2008 is now meeting its inevitable end. However, he added that the situation in China is likely to be managed as an ongoing event, as in Europe following the euro debt crisis in 2011, rather than occurring as a one-off crash.