What Can Global Investors Expect From Chinese Reform?

chinese investment moneyThe recent reforms put forth by the Chinese government, labelled as the most significant since Beijing first began opening up its economy in 1978, may provide some challenges for global investors as they face a volatile market; derived from all the speculation on what direction and tempo the policies will take. An example of this was seen at the conclusion of a key Communist Party conference on economic policy in mid-November 2013, which left Chinese markets fluctuating. Stocks dropped 2 per cent the day after the conference concluded, only to see them jump 3 per cent, in the 2 days that followed.

For the time being, Chinese markets are expected to further fluctuate up and down as people try to predict which companies and financial products will benefit, or suffer, from the proposed areas of reform, extending to nearly every corner of financial markets. There are several questions which global investors currently wrestle with since the announcement of the reforms, such as: “Will loosening restrictions on the one-child policy boost profits at manufacturers of baby products?” Or, “Will implementing a property tax scheme pull money out of real estate into bonds? Stocks? Cash?” The reforms will be a difficult adjustment period for most investors looking for a good investment opportunity, especially those with an investment portfolio comprising only of risky traditional holdings such as real estate, stocks and bonds.

In the long run, most economists believe this is a positive step forward for the Chinese economy. However in the short run, this adjustment period means introducing more downside risks, that will include asset classes previously considered sure bets. Currently, major uncertainty surrounds how Chinese market participants will react to the pains caused by reform. Despite this however, analysts have confirmed there was little sign that foreign or Chinese investors were moving to significantly adjust their portfolios, based on what they have seen so far.