60 seconds with Craig Botham on China volatility and currency depreciation

The outlook for China’s economy remains opaque, but Craig Botham says recent market volatility has been driven by technical factors and a big devaluation for the currency remains some way off.

15 January 2016

Craig Botham

Craig Botham

Emerging Markets Economist

Technicals drive China slide

The year started off very poorly in the Chinese market. Equities fell 7% on the first day of the year and continued to fall over the next few days.

Furthermore, some weak data triggered concerns of a new leg down in the Chinese economy.

In our view, the market leg down has been mainly driven by technical factors and has almost no relationship at all to economic fundamentals.

As we saw in the rally at the start of last year and the subsequent slump, it has been driven much more by sentiment and speculation than by any real solid economic data.

Big devaluation on the cards?

The other potential area for concern is the currency.

We have seen a great deal of depreciation, particularly compared to the historic standard for China.

Investors are worried that we will see a big devaluation.

We think that a gradual depreciation is more likely, but this can still be quite negative for the world economy, because it means you can get deflation exported from China to the rest of the world.

But still, the more disruptive scenario of a big devaluation seems some way off.


  • Craig Botham
  • China
  • Economics

Important Information: The views and opinions contained herein are those of Schroders’ Investment team, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can go down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. Regions/ sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this material include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change.  UK: Schroder Investment Management Limited, 31 Gresham Street, London, EC2V 7QA, is authorised and regulated by the Financial Conduct Authority. For your security, communications may be taped or monitored. Further information about Schroders can be found at www.schroders.com US: Schroder Investment Management North America Inc. is an indirect wholly owned subsidiary of Schroders plc, a SEC registered investment adviser and is registered in Canada in the capacity of Portfolio Manager with the Securities Commission in Alberta, British Columbia, Manitoba, Nova Scotia, Ontario, Quebec and Saskatchewan providing asset management products and services to clients in Canada. 875 Third Avenue, New York, NY, 10022, (212) 641-3800. www.schroders.com/us