Chinese Market Rout - Goldmans Says Buy

Since its June 12 peak the Shanghai Composite Index has lost almost one-third of its value reversing a stunning run driven in part by buying from greatly leveraged individual investors. The multi trillion dollar rout continued apace today with the Shanghai Stock Exchange Composite Index once more plunging shortly after opening. The Shenzhen market, which has more technology focused companies and is often compared to America's Nasdaq index is down an eye watering 41% over the same period.

Asian markets are also feeling the chill with the Hang Seng, Nikkei and Australian bourses also heading south.

In an effort to stabilise the downward glide path the Chinese authorities have thrown everything they can at the market. They have cut interest rates, relaxed margin-lending rules and pledged liquidity support to the market as they fight to contain the retreat. Earlier this week regulators in China also announced a de-facto suspension of new IPOs.

Goldman Sachs however is sticking with its optimistic forecast despite the record outflows. The bank's China strategist in Hong Kong, Kinger Lau, predicts the large-cap CSI 300 Index will rally 27 per cent over the next 12 months as the considerable government backing will boost investor confidence and monetary easing spurs economic growth. According to Lau the leveraged positions aren't big enough to trigger a market collapse and valuations have room to climb.

But investors clearly aren't convinced by government efforts. China's stock market has been undergoing wild swings, sometimes opening with a spike of as much as 7%, before ending the day down by that much.


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