The current fluctuation in A-share trading is just a technical correction and there is no real systemic risk, according to Ting Gao (pictured), head of Asia Pacific macroeconomics at UBS Wealth Management. Recent, extreme movements in the stockmarket will help investors better identify the difference in risk between direct stock investment and structured products, said Gao.
“The A-shares correction has lasted for one month, but there was neither a lack of liquidity in the interbank market caused by massive outflows of capital, nor an increase in interest rates margins,” said Gao. “The fall of stock prices only resulted in losses within the equities market, but didn’t expand to the whole financial market; and we consider that there is no systemic risk and no big impact for the real economy.”
Twenty percent of household financial wealth in China has been invested in equities this year, while 9% has been invested in wealth management products including structured products, according to Gao. “The fluctuation of the market will allow investors to learn more about the relationship between risk and return, and the fact that a high return usually comes with a high exposure to risk,” said Gao. “[This could result in clients] subscribing to investment products such as structured products more rationally.”
Gao remains optimistic about the future of the A-shares market, and expects the confidence of investors to return as long as the Shenzhen-Hong Kong Stock Connect launches in time. “There will be more stimulating policies coming out in the second half of the year, and there is a big possibility for another interest rate cut and deposit reserve ratio cut, but the influence will not be as obvious as with the previous cut,” said Gao.
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