The president of Taiwan's biggest China investment fund said China's last depreciation of its currency sparked a global market crisis and warned investors to be very cautious as more turbulence could be on the way. Henry Lin, President of Fubon Asset Management, which runs Taiwan's biggest China fund, has since adopted a more risk-averse approach after perceived missteps by Chinese authorities to guide the yuan lower sent global markets reeling at the beginning of 2016.
China's equity markets, which have tumbled 15 percent since the year's first trading day. Chinese authorities set another firm fix for the yuan currency and stepped up a verbal campaign to convince sceptical investors that they were in control of events. "We and our clients are under double pressure: The yuan and China stocks both have fallen sharply," Lin told Reuters in an interview on Tuesday. "China stocks might stabilise before falling further, but investors should be very careful about yuan products."
The Fubon SSE 180 leveraged 2X ETF Index Fund, which has T$25 billion ($757 million) in assets, has lost 20 percent of its value this year, exceeding the Shanghai Composite Index's 15 percent fall. Lin said Fubon had no plans to launch new funds targetting China's markets this year, noting T$45 billion of its assets out of a total of T$120 billion were invested in Chinese markets.
"Investors are scared to death...Foreign investors have been selling Chinese stocks, but they can't pull their funds out of China right away. That only makes markets panic more," Lin said. Chinese markets have had a tumultuous start to the year, dragged down by the falling yuan, weak factory and service sector activity surveys, and two days last week when stock exchange trade was halted by the government's "circuit-breaker" suspension of trade.
"What went wrong was not the 'circuit-breaker' mechanism itself," said Lin. "The timing for implementing it was not right - the Chinese yuan was falling sharply at the same time. "China has abandoned the mechanism, which is positive for its own market and global markets. In the short term, however, the Chinese economy will be slowing down and the renminbi (yuan) will be falling. Investors have to be very careful."