Wöhrmann: Check Your China Data Every Quarter

Investors in China should check their figures every quarter in a fast changing market, according to the chief investment officer of Deutsche Asset & Wealth Management, as all investors’ eyes are on the yuan currency and speculating about Chinese authorities’ next policy interventions.

In a new report called CIO View, published today, Asoka Wöhrmann said that recent interventions in China – like halting trading on its stock markets and unpegging the yuan to the U.S. dollar – have been viewed as a lack of control and prompted a further capital market downturn last month. The VIX spiked to an incredible 40 points on 24 August, jumping up from a summer lull of around 13 points.

The CIO responsible for €1.14 trillion of assets said in the short term China is likely to peg the yuan to a wider basket of currencies, and in the long term the currency will free float with only sporadic interventions from authorities.

“A country of this size, which moreover has a share of almost one-sixth in total global trade, cannot peg its currency to that of another country,” he said. “A more relaxed exchange-rate regime will enable quicker exchange rate adjustments, which will help to counteract or even prevent large-scale market imbalances.”

Meanwhile moves by authorities are only worrying investors that they are losing their grip on the situation and Wöhrmann said it was a “mistake” to curb domestic and foreign investor access. The past 12 months have seen capital outflows of about $300 billion and China’s debt-to-GDP ratio has doubled since 2008.

However, Wöhrmann is confident about the long-term prospects for China as it wants to move away from an investment-led to a consumption-led economy, but he warned investors to check their data on China every quarter as the quality of official figures tend not to be “satisfactory”.

“However, longer-term investors should increasingly find interesting opportunities in the H-shares segment,” he added.

The iShares China Large Cap UCITS ETF (FXC), which has shed about $150 million over the past month, has disappointed investors year to date with negative returns of over 9.5 percent and a dramatic drop of close to 30 percent in three months. It tracks an index of 50 liquid companies listed in Hong Kong (H shares).

Patricia Oey, senior ETF analyst at Morningstar, said that as China continues to open up access to irs market over the long term, the total China allocation combining China A-Shares and Hong Kong listings could make up about half of a market cap-weighted emerging markets index.

“Investors who use emerging-markets index funds should consider if they want a potentially very large exposure to Chinese equities within their fund,” she wrote today.