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Hard start to the year in China

8. January 2016

What has happened in China?

Despite measures by officials in Beijing aimed at calming investors, China’s stock market has continued to fall sharply over recent weeks.

Shares in China had soared in the 12 months to mid-June last year, but the momentum came to a shuddering halt in late summer 2015. It appears as though concerns about China’s development are continuing to push share prices down now at the start of 2016. The government’s decision this month to devalue the Chinese currency, the yuan, only served to intensify worries.

How has this influenced other global stock markets?

China is a global growth engine. When the engine starts to stutter, developments in all markets are effected. This has a lot to do with psychology and we see share prices fluctuating far more than they would have done if the prices had solely followed the development of the companies’ earnings or equity capital.

What should I do as an investor in equity funds?

It is important not to think or behave in a short-term manner. The US is continuing to flourish and Europe is steadily improving. Unemployment rates continue to fall, banks are lending and international consumer confidence is rising, so it does not appear as though a financial crisis is immediately imminent. If you have a long-term investment horizon, you should try to sit tight for now.

What do the developments mean for SKAGEN’s equity funds?

Our investment philosophy is value based and long-term in nature. We do not try to time the market, but we think it can pay off to buy attractively priced equities which have the potential to become a good investment in the longer term. Corrections, such as the one we are now experiencing, create new opportunities. A drop in share prices means equities on sale; that is something that we as value based investors can appreciate.

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Historical returns are no guarantee for future returns. Future returns will depend, inter alia, on market developments, the fund manager's skill, the fund's risk profile and management fees. The return may become negative as a result of negative price developments.