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China scare is not a bear, says Mobius

The sharp fall in Chinese stockmarkets last week is short-term profit-taking rather than the start of a bear market, says emerging markets guru Dr Mark Mobius.

The sell-off in the Shanghai and Shenzhen stockmarkets followed concerns ahead of the National People’s Congress meeting this month that the government was planning a crackdown on foreign ownership or the introduction of capital gains tax on shares to cool market exuberance.

This triggered widespread selling on a global scale that hit every major market as investors rushed to bank profits.

Templeton Asset Management executive chairman Mobius says these sorts of corrections should be expected after such a strong bull run that has seen the Chinese A-share market rise by over 190 per cent since July 2005.

He says: “The trading prices of A shares have nearly doubled in the last seven months, making them more vulnerable to declines and volatility. After the fall on February 27, A shares rebounded by nearly 4 per cent on February 28. Asian and European markets, however, recorded further declines of 1 to 3 per cent.”

Threadneedle Investments Far East and Asian equity fund manager Gigi Chan expects the correction to be short-lived, arguing that the long-term case for China remains strong.

She says: “The short term may see further volatility from Chinese stocks. From a longer-term perspective, however, the case for the market remains strong. We believe that corporate earnings’ growth is likely to remain buoyant enough to justify valuations. Structurally, the quality of the market is improving all the time. There is greater transparency and corporate governance is now much stronger.”

F&C head of asset allocation Paul Niven says: “In our view, this episode probably has a little further to run but should not change investor positioning materially.”


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