Stock slide's long-term effect will be limited

Updated: 2015-08-28 08:30

By Wang Mingjie and Zhang Chunyan in London, Paul Welitzkin in New York and Hu Yuanyuan in Beijing(China Daily Europe)

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Stock slide's long-term effect will be limited

An investor agonizes over the falling market at a brokerage in Beijing. The Shanghai Composite Index plunged by 8.5 percent on Aug 24. Zou Hong / China Daily

Volatility in China's young markets doesn't negate the nation's solid fundamentals and is not expected to sink world markets, experts say

The impact of China's stock market slump on European and US capital markets and economy is limited in the long term, industry insiders say.

"China has a relatively new market that is in the process of rapidly opening up, and it is not unusual to have volatility in the system," Mark Boleat, policy chairman of the City of London, says.

"It will be key for the Chinese authorities to address this, look to calm the situation, and crucially help develop an institutional investment base in line with China's pledge to give a decisive role to markets."

His words came as China's stock market has been under pressure since "Black Monday", Aug 24. The Shanghai Composite Index had fallen about 16 percent by midweek.

"We are still observing and working through the short-term effects on the European markets. The size of China's market moves, often over 5 percent, appears to be bleeding into European equity markets - prompting extreme movements," says Ben Kumar, investment manager at Seven Investment Management, a London-based financial company founded in 2002.

As for the longer-term impact, Kumar adds: "Capital markets are unlikely to be affected. We are still seeing plenty of (mergers and acquisitions) activity and debt issuance, the European corporate bond market has been relatively stable over the past few trading days."

European stock markets lost ground on Aug 26 after rallying the day before. London's FTSE 100 closed down by 1.7 percent, with markets in Paris and Frankfurt finishing down by 1.4 percent and 1.3 percent respectively.

On Aug 25, London's FTSE 100 jumped 3 percent, while Germany's Dax gained 5 percent and the Paris Cac rose by 4.1 percent. Other European markets, including Lisbon, Madrid, Moscow and Milan, all closed sharply higher.

Russ Koesterich, global chief investment strategist from BlackRock, the world's largest fund manager, notes: "The selling last week and earlier this week in European equities was very indiscriminate. That selling created opportunities in select European equities.

"We are now seeing investors looking at individual names that represent value. We see value in segments of the European equity market that are geared to domestic growth. Examples would include home builders and some of the domestic-facing banks."

Experts expected more market volatility before the US Federal Reserve meets in September to set interest rates.

Global stock markets continued down a volatile path on Aug 26 as US equities soared but Chinese shares fell modestly. Worries about the economic slowdown in China, the prospect of an interest rate increase in the United States and slumping commodity prices have combined to reinforce fears that the world economy might be on weaker footing than previously thought.

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