US fund managers want less involvement from officials in China in the country’s volatile stock markets, even if it means their portfolios take hits in the short run.
China’s government has taken aggressive actions to stabilize the country’s plummeting stock markets, imposing limits on the sale of shares and channeling pension money into equities. U.S.-based fund managers worry the steps are counterproductive because they distort prices and hold back growth.
Chinese authorities also have begun investigations into the stock market fluctuations, further jangling investor’s nerves. The head of hedge fund manager Man Group Plc’s China business has been taken into custody to help authorities in a probe into recent market volatility, Bloomberg reported on Monday, and a local financial reporter confessed on national TV to spreading false information that caused “panic and disorder.” [ID: nL4N1163WV]
Less intervention would create “a real marketplace” that would be better for long-term valuations, said Gary Greenberg, lead portfolio manager for the Calvert Emerging Markets Equity Fund.
“A fake marketplace generates distrust, and with distrust, lower valuations,” he said.
Such skeptical views were typical among nearly a dozen executives contacted by Reuters who oversee U.S. emerging market funds, including the largest, the $32 billion Oppenheimer Developing Markets fund.
OppenheimerFunds Chief Investment Officer Krishna Memani said intervention by policymakers “scares investors worldwide as it signals that things are far worse than they really are.”
The managers’ opinions show the balancing act Chinese officials face as they try to reassure domestic investors while moving to open their economy. At the end of July, foreign investors held only about 1 percent of the $7.8 trillion total valuation of all stocks traded in China, estimated Zhiwu Chen, finance professor at the Yale School of Management.
The Shanghai Composite Index is down 38 percent from its June peak, prompting both the interventions and questions about regulators’ expertise.
Some managers, including BlackRock Inc senior investment strategist Gerardo Rodriguez, sounded more tolerant of China’s policies.
“Eventually all the actions taken now can lead to a free-floating market,” Rodriguez said.
The doubts also do not seem to have translated into an exodus of money.
But the fund executives overall wanted a more market-oriented approach.
“The government’s intervention in the equity markets hurt their credibility,” said T. Rowe Price Group Inc portfolio specialist Chuck Knudsen. “In our eyes, at least.”