Mark Mobius says volatility is the name of the game in 2016
Mark Mobius, executive chairman of Templeton Emerging Markets Group, said, “The fundamentals in China are still excellent, in our view. It is one of the fastest growing economies in the world even if the growth rate has decelerated.”
Mobius believes that China will continue to grow strong and that the country is faced with a complex riddle in 2016. He is of the opinion that Chinese markets have become volatile because the government is trying to achieve stability and to keep the markets free from capital controls.
Mobius further stated that the markets will be volatile in 2016 not only in China, but across the globe. “I think it is important for anyone interested in understanding China’s goals to read the 10 points of the plenum, which outline the direction of the economy,” he said.
The following reforms were announced at the Third Plenary Session of the 18th Communist Party of China Central Committee in 2013:
- Deregulation: Private sector allowed into most industries reserved for government
- Opening up: Foreign companies allowed greater market access to the services industries
- Financial liberalization: Private sector encouraged to establish financial institutions, accelerate interest rate deregulation, and accelerate toward capital account convertibility
- Land and Hukou reforms: Legal titles of land use rights and rights to transfer, improved social services for migrant workers
- Resources pricing reform: Oil and gas, water, and other resources to be better allocated
- State-Owned Enterprise (or SOE) reform: Improvement of efficiency and resource allocation
- Fiscal reform: Property tax to enhance local government revenue stability
- Social Security reform: Consolidation of pension system and transfer of SOE shares to the pension system, private medical services to be promoted
- Developing of the bond market: Local governments able to issue bonds independently, better-priced risks
- Relaxing of one-child policy: Enhancement of long-term growth potential, promotion of consumption over the medium term
David Tepper thinks Chinese yuan is highly overvalued
David Tepper, owner and founder of Appaloosa Management, is of the opinion that Chinese markets could see further devaluation of the Chinese yuan in the coming months. He thinks that the yuan is highly overvalued and needs further correction. According to Tepper, further easing could help China to get out of the tight spot it’s in these days.
Major hedge fund houses such as Passport Capital and Coatue Management reduced their holdings in 58.com (WUBA), Ctrip.com International (CTRP), and JD.com (JD). Tepper also sold off all his holdings in Alibaba Group (BABA).
In the next article, we’ll analyze China’s foreign reserves.