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Daniel Loh: Chinese Economy Not Cause of Global Rout
Aspire, Thought Leaders | 28 August 2015
By: Vance Wong
Articles (74) Profile

It seems like everybody is pointing fingers at China now. It is easy to blame the Chinese economy for the worldwide stock market rout, but people do not realise that China’s economy has been in a bad shape for some time already.

Daniel Loh, local investment guru acknowledges that the impact of the slowing Chinese economy had contributed to the recent market rout recently. However, he thinks that the uncertainty of interest rates was the main contributor.

Uncertainty had caused money to flow out from stocks and commodities, assets that are considered more risky. If US Federal Chairwoman Janet Yellen were to give a clearer indication of when rates will be raised, there might be a good chance for the markets to rebound.

Chinese Economy Has Been Hurting Since 2011

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The Chinese economy has not recovered ever since 2011. Last year, China stock market went berserk not because of the good economy. Daniel thinks that the frenzy was only a result of the series of economic stimulus employed by the Chinese government.

Although the government is still trying to support the economy and stock markets with policies, it seems that investors are losing faith in the economic stimulus.

On Wednesday after the close of trading in Chinese markets, the People’s Bank of China (PBOC) said that it would inject RMB150 billion ($32.82 billion) into the financial system. That was after the central bank had announced an interest rate cut earlier on Tuesday.

Despite all these, the Shanghai Composite Index (SHCOMP) has dropped around 600 points over the course of Monday to Wednesday that week.

China in Second Phase of Bull Market

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To Daniel, this is a normal phenomenon of a bull market in its second phase. Valuations have flown so high that it is no longer sustainable; economical reports and earnings have not caught up with the pace of the stocks. Therefore, consolidation is inevitable and needed.

Waiting is also needed for the stimulus to take real effect and be reflected on the fundamentals of stocks. In fact, Daniel is not worried about China’s economy being in a bad state now, as he is optimistic and believes that it will improve in due time.

For long term investors, this might be another great chance for those who missed the China bull run last year. You would not want to join the run when it hits 5000 points again.

Investors’ Takeaway

Contrary to what others might believe, Daniel thinks that the global markets are still in a bull market, although not irrational anymore. The banks are in a good shape and are not over leveraging. US property prices are still far from its heights but improving.

The local guru maintains that US interest rates are still kept within the range of zero to 0.25 percent, which means liquidity is still floating in the market. Furthermore, China, Europe and Japan are still injecting funds into their respective economies.

Daniel advises retail investors to do some homework and look for good growth stocks that still show consistent earnings with strong balance sheets. These might be the stocks that will bounce back quickly once the market panic subsides.

With a Communications background, Vance has the passion to write with a purpose - to provide content supported with substantial evidence to vested readers.

Please click here for more information about this author.

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