Chinese fundamentals remain strong but fears of reduced liquidity are high

Despite a short-term correction in Chinese A Shares, the medium- and longer-term outlook is robust.

The Chinese A Share market slumped by 22% in August, due to doubts about the strength of China’s economic recovery and concerns that the government could withdraw credit growth to avoid a bubble. However, we believe China’s fundamentals remain strong and the recent correction in Chinese shares was not a surprise given market has rallied strongly this year (even with the correction the year to date gain to end August is about 46%). A factor in the August correction was the fall in the growth in lending between June and July. This prompted fears that liquidity supply may be severely red...