Shanghai stock market plunged 6.5 percent last week. It was one of the biggest daily falls in any major market since the peak of the financial crisis.
In an interview to CNBC-TV18, Shaun Rein, Managing Director, China Market Research Group says the pricing and fundamentals in the Chinese markets are not correlated.
“Investors here are investing based purely on psychology, purely based on what they think the government might do. So, what is happening right now is once people think that prices will drop everybody gets out automatically very quickly,” he explains.
He expects the market to see loads of volatility and initial public offers (IPOs) in the upcoming days.
Below is the transcript of Shaun Rein's interview with Reema Tendulkar & Nigel D'Souza on CNBC-TV18.
Nigel: Have you heard any incremental news with regard to China because currently those markets are selling off?
A: If you look at the A-shares in the Shanghai stock exchange, the pricing was relatively stable and suddenly around 12o’clock the prices dropped at 4 percent level, so right now prices and fundamentals are not correlated. Investors here are investing based purely on psychology, purely based on what they think the government might do. So what is happening right now is once people think that prices will drop everybody gets out automatically very quickly.
In China the vast majority of shares are held by individual investors rather than by mutual funds and hedge funds in United States. So these investors are basically investing entire life savings and they fear that prices may drop and they get out quick.
Reema: What is the view now given this kind of lack of fundamentals which are pushing up the Chinese market higher, the volatility? Do you now see china fairly priced; is there a risk that perhaps now investors will pullout money from the Chinese markets?
A: I expect there will still be a lot of volatility, people going up and down. I think what you saw in the last two-three days is prices have gone up so people are taking money off the table, there are going to be a lot of initial public offerings (IPOs) coming up in the next week or two and there are still worries or rumours about more restrictions on margin trading. Therefore, people are just getting out and bargain hunters can pop back in the later afternoon or tomorrow morning.
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