An investor at a brokerage in Beijing. (Photo: China Dialy/Cao Boyuan)
Be patient and invest in the long run is the advice a financial veteran offers to investors whose eyes are fixed on China's equity market.
Despite market volatility, the country's underlying economy is relatively sanguine, said Steve Potter, president of Northern Trust Global Investment.
"Chinese authorities have all the right tools to manage a soft landing," Potter told China Daily website, adding that investors overseas are watching the market closely.
With A-share's inclusion into the MSCI Emerging Market index, more capital with long-term commitment will come, said the veteran with 34 years experience in the financial services industry.
"We are confident that China's economy, even in slowdown, is on a solid ground," he said.
Founded in Chicago in 1889, Northern Trust manages over $875 billion assets. The company established its Beijing branch in 2010 and was granted the Qualified Foreign Institutional Investors (QFII) quota in 2012.
In an exclusive interview with China Daily website, Steve Potter offers his insights into the "chaos" in both A-share and yuan exchange market and the global appetite to Chinese investment.
Q: China's stock market has gone through a volatile year, which also had a ripple effect in the global market. How do you see the recent fluctuation and the fundamentals?
Potter: It's not surprising, as we expect more market volatility globally. We saw that last summer in China, especially after a great trend in the first half of the year and got much ahead of itself. It's just a bit shocking to see such a dramatic fall right in the first trading day of the year.
But we understand the nature of Asia market where the majority investors are individuals who move quicker than institutions, therefore we separate what's happening to A-share market itself from the underlying economy and think about longer term and fundamentals.
China has sent a clear message that its growth will decline, but in aggregate the economy is still very strong and fast-growing compared to the world. If you look deeper, there's overcapacity and manufacturing data as transportation and electricity utilization is relatively soft and declining. But what has taken place is a transition towards much stronger service economy and much of that being built by private enterprises and long-term sustainable business development.
It's important to the world that China continues to do well. We believe the government has shown through time aptitude and success of managing the dynamic changes in the markets. As the economy becomes bigger, there will be more complexity to the transition and more market volatility. There may have been overvaluation of securities and real estate. What's happening in China is quite encouraging, and we are optimistic for the long term.
Q: Does the renminbi's depreciation concern your clients? How do you see global appetite for renminbi denominated assets to evolve?
Potter: Yes, in terms of equity valuation and whenever individual investors see this kind of volatility, they want assurance. We develop diversified portfolios for our individual clients that include fixed income, equity, commodity and other alternative assets classes. Moments like this remind them of the importance of diversification.
Investors are still concerned about the relative valuation of yuan. Everyone is watching closely to see how stable the market becomes. They are cautious, while at the same time there's confidence that China's economy, even in slowdown, is on a solid ground.
