China´s stocks caused a rough opening of 2016 as they dropped dramatically. Economist Arthur Kroeber expects the volatility to continue for a few months, as the government is slowly withdrawing its support, moving awaya from artificially higher values, he tells Globe&Mail.
“Chinese stock prices are in for a rough ride for the next few months, I think that’s very clear, as the government gradually takes off the remaining life support,” said Arthur Kroeber managing director of independent global economic research firm GaveKal Dragonomics.
“To some degree, the prices established in the second half of last year were false prices, because they were not based on people buying and trading shares in the normal way. And if the government support retreats, the false price falls away and the true price arrives – and no one knows what that is.”
In the long run, he said, Beijing’s desire to pull back should lead to better markets. Reforms to IPO requirements could be passed as early as this spring and are expected to reduce political influence and allow more private companies to enter the stock market, making it more representative of the broader economy.
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