Institutional investors are underestimating the effects of China’s stock market crash on other Asian and developing markets, according to NN Investment Partners (NNIP).
The Netherlands-headquartered asset manager quizzed 120 investors last month on the prospects of various regions and asset classes for the next 12 months on a risk/return basis.
While investors were far more positive about US equity markets than China—46% viewed the US as attractive versus 22% for China—investors were spit on the prospects for currencies. The same proportion of respondents (37%) expected emerging market currencies to appreciate as depreciate.
“This survey result confirms once again that investors are still underestimating the large pressure on emerging markets from the Chinese slowdown and the gradual unwinding of the US dollar carry trade,” said Maarten-Jan Bakkum, senior emerging markets strategist in NNIP’s multi-asset team.
“Emerging markets growth momentum continues to deteriorate, while policy makers remain unable to improve the investment climate and allow for an orderly deleveraging process after years of excessive credit growth,” Bakkum added. “Currency risk remains high, as real effective exchange rates are still not reflecting the weak emerging market fundamentals and deteriorating global liquidity environment.”
China’s stock market plummeted in June, with the Shanghai Shenzhen CSI 300 index falling 16.5% from its high point on June 8 to the end of the month. The market closed on August 6 at 3,902, 27% lower than June 8.
A wave of Chinese companies stopped their shares from trading on local exchanges to prevent further falls, and the regulator temporarily banned investors holding stakes higher than 5% from selling.
NNIP’s survey reported that 21% of investors saw an economic slowdown in China as a “significant” threat to their portfolios; 40% said they expected a slowdown within the next 12 months.
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