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16 Jul 2015
China equities sell-off poses no systemic risks to economy - Fitch
FXStreet (Mumbai) - Fitch Ratings Agency noted in its recent report, the recent volatility in China's equity markets should not pose a systemic risk to China's real economy or financial system.
Key Quotes:
"Government is shifting positions to prioritise growth over reform, and also underscores the underlying issue of moral hazard in China's capital markets."
"By implementing policies to back-stop equity prices, government is reinforcing an expectation that the state will protect against any downside. This runs contrary to stated strategic policy intentions to develop equity and fixed-income markets that are governed by market mechanisms,"
"Nearly half of listed stocks in China were suspended during the recent volatility, which has a direct effect on brokers' liquidity and raises refinancing risk",
"(Brokers) do not always have access to lenders of last resort, and become more reliant on interbank funding in times of stress."
As for the moratorium on new IPOs, such a decision "raises questions about the potential for the equity market to act as a source of new capital to address the high level of leverage in the economy."
Key Quotes:
"Government is shifting positions to prioritise growth over reform, and also underscores the underlying issue of moral hazard in China's capital markets."
"By implementing policies to back-stop equity prices, government is reinforcing an expectation that the state will protect against any downside. This runs contrary to stated strategic policy intentions to develop equity and fixed-income markets that are governed by market mechanisms,"
"Nearly half of listed stocks in China were suspended during the recent volatility, which has a direct effect on brokers' liquidity and raises refinancing risk",
"(Brokers) do not always have access to lenders of last resort, and become more reliant on interbank funding in times of stress."
As for the moratorium on new IPOs, such a decision "raises questions about the potential for the equity market to act as a source of new capital to address the high level of leverage in the economy."