As China’s economic growth slows, investors should look to more stable areas.
Still, “it’s very important that investors understand that the recent volatility coming from China was a crisis of credibility, as opposed to a crisis of fundamentals,” says Benjamin Tal, deputy chief economist at CIBC.
The market there has experienced dips as well as swings in price-to-earnings ratios, he explains. And, “the issue was that the government was trying to control the stock market. Of course you cannot do so, and by doing that they lost a lot of credibility.”
As such, Tal isn’t certain to what extent the Chinese economy will be able to rebuild its credibility over the short term. “I think volatility will be the name of the game coming from China until the market realizes that authorities there can control the situation. They have the monetary might, the fiscal might, and the political ability to do so.”
On the upside, he expects China will see a positive trajectory in 2017. “[But], between now and then, we might see more volatility. Therefore, I suggest to stay away from China, especially when it comes to the stock market. And emerging markets will be another source of volatility because of China and the potential for higher interest rates in the U.S.”
Currently, he adds, “Places like the U.S. and even the Eurozone are much more attractive. At the minimum, [they’re] less risky.”