“Stay optimistic,” said Peng Yao, portfolio manager for UBP’s U Access – Best Selection China A Fund, during a roundtable on Friday. “When you have a dramatic boom and bust in a very short time, it’s very damaging to investor confidence.
“It’s like when you run up the fifth floor and jump down, it hurts. And the best thing to do is to sit on the ground for a little while. So it’s best to sit tight and wait for investor confidence to return.”
Not ready
Yao said many institutional investors were unprepared for the Shanghai-Hong Kong Stock Connect initiative, pointing out that hedge funds were the first to partake in the scheme, while the banks still say they are not ready more than 10 months after the scheme launched.
But with the Chinese Government intent on taking small measured steps to push its economy forward and loosen its barriers to foreign investment, he thinks it is only a matter of time before the quotas for qualified foreign institutional investor licences (QFII) rise around the world.
Acceptance
Yao pointed out that one aim of the government is to make the renminbi more attractive, which is why he thinks continued depreciation of the currency is unlikely: “The [government’s] main focus is to achieve renminbi internationalisation, so in that sense it doesn’t make sense to enter into a devaluation trend.
“The reform in China is very gradual. We have continuous price movement now to gain acceptance for the renminbi.”
Revolutionary
China’s economic reform, he said, is revolutionary in that the Chinese Government has realised it should not control everything, instead setting up a ‘framework’ of what investors cannot do, as opposed to its previous structure which set out restrictive guidelines on what investors can do.
“Now the government is really trying to govern differently, giving better communication and transparency and engaging with investors.”
However, Yao added that control over the economy is important in ensuring there is a steady environment for pushing reforms.
“When they are slowing down they want to ensure there is a soft landing; stability is a top priority for the government.”
