China volatility due to 'crisis of confidence'

Former GIC chief investment officer and Avanda founder Mr Ng (left) and Credit Suisse senior adviser for investment, strategy and research Mr Parker were panellists at the fourth annual Credit Suisse Global Megatrends Conference yesterday.
Former GIC chief investment officer and Avanda founder Mr Ng (left) and Credit Suisse senior adviser for investment, strategy and research Mr Parker were panellists at the fourth annual Credit Suisse Global Megatrends Conference yesterday.PHOTO: MATTHIAS HO FOR THE STRAITS TIMES

Recent market volatility stemming from uncertainties over China's prospects has been the result of a "crisis of confidence" in the country's institutions and financial system, said former GIC chief investment officer Ng Kok Song at a conference yesterday.

Mr Ng, now founding partner and chairman at Avanda Investment Management, said the country's long-term growth outlook is still strong, though there is room for reform and concerns linger over rising debt levels.

He was speaking at the fourth annual Credit Suisse Global Mega- trends Conference, held yesterday at the Fairmont Singapore.

Mr Ng, who was on a panel with Credit Suisse senior adviser for investment, strategy and research Robert Parker, spoke about the investment outlook for this year, given patchy global growth and low to negative interest rates.

Both panellists agreed that China is probably not headed for a hard landing.

But there will likely be more volatility ahead as the country manages its transition towards slower, more sustainable growth.

"China is undergoing a very challenging transition, from investment- and export-led growth to being more dependent on domestic demand," Mr Ng told the 500-strong audience.

"The key is really confidence in policymakers' ability to bring about a soft landing... (The market volatility) was really about a crisis of confidence."

There are opportunities to be had in China and it remains an attractive potential market for global institutional investors such as sovereign wealth funds and central banks in search of diversification and yield, he noted.

The country is "fertile ground for serious global investors" but it must be able to instil confidence.

To do so, Chinese policymakers "have to undergo a change in mindset", for instance, by making capital markets more transparent and cutting back on over-intervention.

Mr Ng also said he is concerned about the risk of a looming debt crisis in China, which has experienced rapid, unsustainable expansion in credit.

While this has helped support short-term economic growth, it is likely to have ramifications in the long run.

"They are kicking the can down the road," he added.

Despite these challenges, China still offers investment opportunities, said both panellists.

Besides investing directly in China, investors can also consider putting their money in assets with exposure to China, said Mr Ng.

A version of this article appeared in the print edition of The Straits Times on April 22, 2016, with the headline 'China volatility due to 'crisis of confidence''. Print Edition | Subscribe