China's stock market tumble no surprise to fund managers
Some welcome breather after fast runup
The rout on the Chinese stock market and its ripples around the
world prompted a little "I told you so" finger-wagging from some on
Bay Street yesterday. There have been plenty of signs a market
correction was in the works, clear "sell" signals that many chose
to ignore, fund managers agreed.
"Why didn't you sell some [shares] last year after you made 100 per
cent?" asked Gavin Graham, chief investment officer at Guardian
Group of Funds in Toronto. "If you still have exposure and haven't
taken profits, well, I am afraid, my friend, you have been greedy
and now you are afraid. That's the way emerging markets work. They
are volatile."
The Shanghai composite index plummeted 8.8 per cent yesterday to
close at 2.771.79, hurt by speculation that the Chinese
government's new austerity measures will slow the nation's sizzling
economy. Reaction was fierce. In New York, the Dow Jones industrial
average dived more than 416 points. Stock markets in Canada, Europe
and Asia also slid on concern that waning demand from China will
curb global growth.
Chinese stock prices doubled last year as investors piled into the
market in the wake of shareholding reforms.
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In Canada, mutual funds with exposure to China have been red hot.
The fund asset class Asia-excluding-Japanese equities were up an
average of 32.4 per cent for the 12-month period ended Jan. 31. The
sector reported net sales of $184-million in January, up 119 per
cent from the same period in 2006.
"It was time for a bit of a breather" in the Chinese market, said
Patricia Croft, chief economist at money manager Phillips Hager
& North Investment Management in Toronto. "It was obviously a
very sharp decline in a short period of time . . . but you have to
put it in the context of how far the market has run."
The Chinese government has warned investors repeatedly that it
won't tolerate market speculation and will curb lending if
necessary, Mr. Graham said. "It's apparent they are actually going
to do it, and everyone goes whoosh! Money out the door. But we
can't all get out the door at the same time, and we're down 9 per
cent in one day."
He termed the correction "a stock market event, not an economic
event," and foresees strong economic growth as China gears up to
host the Olympic Games next year.
"We are relieved this has happened," said Patricia Perez-Coutts,
manager of the AGF Emerging Markets Fund. "Some markets have been
running too fast, too high. We can't really let that happen,
either. You have to stay the course, and check the markets you are
in."
Her $324.5-million fund has been taking profits and reducing its
exposure to China in recent months. In December, it had a
15-per-cent weighting in the country; today, it has shrunk to about
10.5 per cent. Ms. Perez-Coutts predicts Asian markets will remain
volatile for the next two to five weeks. Nevertheless, she said her
fund will soon be on the lookout for bargains.
Don Reed, president and chief executive officer of Franklin
Templeton Investments Corp. and manager of the Templeton
International Stock Fund, is positioning that fund to take
advantage of "a change that seems to make people nervous."
As of Dec. 29, the $2.6-billion fund has a 6.5-per-cent weighting
in China.
"From our perspective, it is a great buying opportunity," he said.
"When a stock is trading lower and the fundamentals are still
intact, that stock will be worth more tomorrow than it is
today."
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