Experts: Stock turmoil is a correction not a crash

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The US stock turmoil last week triggered a sell-off in other markets such as the Chinese mainland and Hong Kong. How long will the rout last? And how will it affect the flow of global capital?

Chinese A-shares fell sharply last week after the US stock market plunged. The panic triggered the global market sell off. Analysts say the US stock turmoil and the depreciation of the US dollars may lead to the re-allocation of global assets.

“The US dollar index got weak last year, and became weaker and weaker from the beginning of this year. And the global economy recovered last year, and this increased the risk for the hot money,” said Wang Long, head of trading at China Securities International.

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Hot money is currency that moves regularly, and quickly, between financial markets so that investors ensure they are getting the highest short-term interest rates available. It continuously shifts from countries with low interest rates to those with higher rates.

“They will go outside America and into the emerging markets or the European markets, to get the high yield,” said Wang.

But observers say that if the global equity market collapses in the future, the capital and hot money will go to US assets for safety. And they believe the US macro economy and stock market will be more attractive after the adjustment.

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The stock market fall looks more like a correction, not a crash. Analysts believe that as global economic growth remains robust, the market is expected to get back on track.

“The S&P 500 index rebounded last Friday. But it still needs more positive signals from other markets, such as Europe. I can’t say the stock market is stable. Maybe it will be attacked in the future. But fundamental of the global economy is not influenced by the stock attack,” said Wang.

Experts say the fall of A and H-shares are mainly affected by the market sentiment. Investors should not be over-reacting to this round of adjustment. The long-term development of China’s stock market will be decided by its economic fundamentals.