China’s markets are tumbling as the country’s economy moves to a new normal of a consumer driven model.
Ronak Gopaldas, country risk analyst at RMB, explained contextually that, “In the last year or so the Chinese stock market has been on a massive bull run expanding over a 120 per cent and since mid-June entered bear market territory. So this moon of liquidity has vanished and we are in a new equation all together.”
Gopaldas said the notable catalyst leading to a speedy decline was the nature and scale of the policy response from the Chinese authorities.
He added that it cannot be underestimated that China knows where it wants to get to; the path to get there is proving to be “tricky”.
“We have grown used to the Chinese model being an export led investment orientated model, however we are moving more towards a consumer driven economic model, “ he said.
Where policy is concerned, Golpadas advised that more tolerance is due. “On balance they have the tools and the policy toolkits to get it right.”
Hannah Edinger, director at Frontier Advisory, said the relationship between China and Africa has been “immensely entrenched” over the last decade. “African economies have hinged their economic wagons to the Chinese growth locomotives.”
Edinger described this connection as a “real economy relationship” versus a virtual one merely represented on the stock market.
With all the angst circulating around China, Byron Lotter, portfolio manager at Vestact, said it’s important to separate the stock market and the economy.
“The economy is shifting into a consumer based economy; the base is so much higher. So the actual contribution to the global economy is still increasing. I think overall trade with South Africa, we’ll still see solid growth and soild demand coming through from China.”
Wole Famurewa, CNBC Anchor in West Africa, relayed the Chinese market nosedive to Nigeria, citing the similarity that, “What happened in Nigeria in 2006 to 2008 is the liquidity driven bubble we have seen, we remember in 2007 the Nigerian market was over 75 per cent, it really sounds a lot like China and I think that bubble has burst.”
Famurewa said in the three years after 2008, the Nigerian markets struggled to make a swift comeback and that devastated the financial markets. On the basis of China’s global standing in the economy, this could be bad news.
Gopaldas said the common vocabulary with regards to such plummets is “soft landing” or “hard landing”, where China is concerned they need to prepare for a “long landing” as the country transitions into its new economic structure.