As China cracks again, here's why you shouldn't panic

Asian markets, including India's, are trading sharply lower this morning following a crack in Chinese equities, where trading had to be halted.This brought back memories of a fall witnessed mid last year, where the Chinese market fell about 30 percent in a matter of a few months.However, Hartmut Issel of UBS is not unduly worried about the volatility and says investors should use declines to add to positions."The market is just nervous about the lifting of a ban on selling of shares by large investors [that had been put in place in July] on January 8," Issel told CNBC-TV18.He also dismissed the view that a weak Chinese PMI number that came out this morning was behind the sell-off, saying that the 48.2 Caixin PMI number was not "particularly disastrous".If anything, Issel said he was constructive on a lot of markets: Eurozone, Japan and Asia in general."Companies across Asia are becoming more disciplined after years of excess," he said. "That (capital discipline) will be the earnings driver."He added that in the case of China, he expects more fiscal and monetary stimulus going forward.Below is the verbatim transcript of Harmut Issel’s interview with Sonia Shenoy and Anuj Singhal on CNBC-TV18.Sonia: It has been quite a dire situation for the Chinese markets today. How have you read into it and how do you think other markets like India could perform going ahead?A: I think the Chinese situation is to some degree very specific I think especially on the Asia market for the mainland shares people are also getting increasingly concerned on the rollout of the short sell-off band by January 8 so that is coming up relatively soon. So, that adds to the nervousness. I am not so sure that the PMI, they weren’t particularly strong but then again they weren’t disastrous either. I think people are just a bit nervous of the January 8 state.Anuj: Would you say that the Asian screen is presenting a good buying opportunity or would you stay clear off that till some clarity emerges?A: We are fairly constructive on Asia in general. The reason for that is not necessarily that we expect gross domestic product (GDP) growth to come back in a hurry. The reason is actually that we detected already in the second half last year that companies across the board not only in China, across Asia-Ex are starting to become a bit more disciplined on capex.So basically addressing some of the over capacity that we are seeing in the market and this is really the earnings driver for us that we think is probably going to be maybe the less obvious one but probably this year the more powerful one then necessarily topline growth which we don’t think is going to accelerate a lot across Asia .Sonia: We were speaking with someone earlier on and they mentioned that for 2016, at least for the first half, there is an expectation that developed markets will do better than emerging markets. Is that your expectation as well?A: By and large it is, so, if you look at the regions where we are overweight which is eurozone and also Japan and emerging markets, we are not that negative anymore. However, also we would agree it is premature to get very positive here especially in the material space, energy space, the overcapacity washes through. However, as I mentioned, at least in a way we are seeing some hopeful signs that companies are finally starting to address, after many years of excess of investment, starting to address that situation. Anuj: For China itself do you think this panic is overdone now and going forward once the market opens for trading again, would you expect some kind of buying to resume?A: We are actually perhaps a bit contrarian but overweight on China so the H-shares within Asia and we do indeed believe that the market has overdone it. Already towards the end of last year, China became the cheapest market in the region certainly on PE terms and we do believe that some of this excess capacity being addressed, also we have much more evidence now that on the fiscal side we are probably talking about a bigger budget deficit this year so there is fiscal stimulus coming forward, there is also more monetary stimulus coming forward and that usually often times also represents turning points in market so our read is not as negative or not negative at all in fact here on the situation here in China.Sonia: I wanted to ask you your view on the yuan as well because as we speak the Chinese yuan has also weakened to a new low, I think it is at the lowest level in the last 15 months or so, that of course reduces the export competitiveness of many other countries. Would you worry about that?A: We think it is a normal development that is happening now and everybody of course looks at the yuan just as a pair versus US dollar has become very strong in recent months and took the yuan basically with it which didn’t reflect the economic reality. In the US you had fairly well entrenched recovery and China growth was slowing so it is a natural development on the currency side that we are getting a bit weaker and probably that is not even finished yet so we think to the tune of 3 percent or so we are going to see over the next 12 months.Sonia: You don’t see the reminbi devaluation as disruptive for any of the emerging markets?A: Perhaps not disruptive but what I do think it means is because it is such a big currency, it is kind of anchored to the region here especially in Asia, it also exerts downward pressure on other currencies especially neighbouring currencies. I think that is a fair assessment.