SSE Composite Index fell
The SSE (Shanghai Stock Exchange) Composite Index fell marginally from April 20–27, 2016, ending at 2,953.7 on April 27. This came despite China’s industrial profit growth in March. Investors are worried that the favorable economic data may result in the end of expansionary monetary policy measures adopted by Chinese authorities to boost the slowing economy.
The equity market also slowed down after the US Federal Reserve kept interest rates unchanged, as widely expected. After its two-day FOMC (Federal Open Market Committee) meeting, the Fed cited a slowdown in economic activity as the primary reason. The Bank of Japan surprised global markets by holding off on a further stimulus despite subdued domestic inflation.
The equity markets were also impacted after the CSRC (China Securities Regulatory Commission) intensified measures to curb speculative practices in the commodities market. It did this to keep prices of raw materials in check and deter high-frequency trading.
China’s debt restructuring program
The IMF (International Monetary Fund) said on April 26 that China’s debt restructuring program could result in the creation of “zombie” firms if it’s not handled carefully. The program is done through securitization of non-performing loans and conversion of debt into an asset-backed security. According to an IMF study, 15.5% of loans, or $1.3 trillion, were at risk.
Returns of China-focused mutual funds
From April 20–27, 2016, the Oberweis China Opportunities Fund (OBCHX) fell by 2.1%. The AllianzGI China Equity Fund – Class A (ALQAX), the Columbia Greater China Fund – Class A (NGCAX), and the China Clough Fund – Class A (CHNAX) fell 1.5%, 1.4%, and 1.1%, respectively.
Meanwhile, the John Hancock Greater China Opportunities Fund – Class A (JCOAX) fell 0.6% for the same period.
In the next part of this series, we’ll look at China’s industrial profits data.