Neptune: Stock Markets Exaggerate China Troubles

Global stock markets' gloom and doom is over the top, says Neptune's chief economist James Dowey. Chinese and US policy is moving in the right direction

Neptune 12 January, 2016 | 9:22AM
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Morningstar's "Perspectives" series features investment insights from third-party contributors. Here, James Dowey, chief economist and CIO at Neptune Investment Management, explains why he considers markets to be overplaying the risks from China. 

The current volatility in global markets has precisely the same cause as had the major bout of volatility last August. As the Chinese renminbi is pegged to the US dollar, US monetary policy gets exported to China. This means that a strong US economy and a weak Chinese economy give rise to a tug of war at the centre of the global financial system. However, I believe the market’s gloom and doom is over the top. This is because the policy solutions are simple, feasible and being executed by the US and Chinese authorities. They are threefold and work best in combination.

First, the Federal Reserve must tread cautiously, releasing hawkish communication only when capital flows out of China are relatively becalmed – this is exactly what the Fed did last September, when it decided against raising interest rates at that time. I believe it will do so again with respect to the next rate hike.

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Neptune  is an independent and privately owned investment management company, founded in 2002 by Robin Geffen.

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