Last updated: 13:54 / Thursday, 15 October 2015
Analysis by Investec

The Evolution of China’s Capital Markets

The Evolution of China’s Capital Markets

There is little doubt China is going to play a major role in determining the trajectory of global markets. So with the world’s second-largest economy going through a period of profound change, says Investec, it is crucial for investors to gain an understanding of the challenges and opportunities inherent in this transformation.

For the past five years or more China has been rebalancing to make consumption a bigger part of the domestic economy than investment, and services a more important driver of growth than manufacturing. The People’s Republic is also seeking to become better integrated into the global financial system by allowing greater foreign participation in its domestic capital markets and encouraging its companies to invest abroad.

“The recent turmoil in China’s onshore markets was further evidence that this rebalancing process was not going as smoothly as planned, while the global reaction highlighted the fact that many investors have not understood it or the challenges it represents”, points out the firm.

But Investec believe such gyrations should be expected as structural adjustments play out. “As the rebalancing process continues, we anticipate a wealth of opportunities may be uncovered for investors who are prepared to take a disciplined, bottom-up approach with a long-term time horizon”.

According to the Investec´s experts, while many investors may not yet be ready to invest in China’s onshore markets today, there is growing recognition of the importance of developing a more nuanced understanding of the changes taking place in China and the country’s role in the evolution of the global financial system. "We believe that the sharp global reactions to China’s stock market volatility and devaluation of the renminbi over the summer of 2015 make clear that we are embarking on a new era in global markets, one that has China’s increasing integration into the global financial system at its core".

“This process is only just beginning and the road is likely to be bumpy. Beijing’s policy response to steering the country through its major economic and financial transitions, is not going to be familiar. China is taking an alternative path to financial regulation than that traced by the West by choosing to experiment to find an appropriate position. Beijing will likely make small, regular adjustments to various policy levers to find out what works”, state Investec.

Since the firm established our Hong Kong office in 1997, Investec Asset Management has invested in both onshore and offshore Chinese securities. “Over the past two decades we have learned to navigate the country’s complex and evolving regulatory processes, and understand its unusual market dynamics. We hope to share this insight with our clients and use our knowledge and expertise to help them understand the impact of events in Beijing on their portfolios, wherever they are invested”, conclude.