I AM VERY CRITICAL OF THE CHINESE GOVERNMENT`S BEHAVIOUR

Thomas Gerhardt, Head of Global Emerging Markets and Commodities, Edmond de Rothschild Asset Management (France) “I am very critical of the Chinese government’s behaviour. It is attempting to manage the stock market and has to perform a balancing act by maintaining a positive environment for equities on the one hand, and reining in speculation on the other. It is a losing battle. The current escalation is due to the fact that 85 percent of shares were suspended from trading. It is logical that trading then focused on the remaining 15 percent, which fell on a massive scale. The old thinking that the state can control everything does not work on the stock market. In fact, it is counterproductive, because investors need stability. The last thing they want is to have shares suspended from trading and investors being forced to buy or sell shares. There are already visible effects of the stock market crash on the Chinese economy. Carsales, for example, have already subsided slightly in the last two weeks. This is because private investors no longer feel as wealthy as before and therefore postpone buying cars. It isnothing too dramatic yet, but the market is watching closely. This is why the share prices of German car manufacturers are also lower today.However, I do not think there is any danger of China’s economy collapsing. This would only be the case if growth were to drop below five or six percent, a level when no more jobs are created. The government has taken all precautions to prevent this. Such intervention makes more sense on the economy than on stock markets. German car, machinery and plant manufacturers therefore have no reason to fear losing a key sales market in the near future. “----------------------------Benjamin Melman, Director of Asset Allocation & Sovereign Debts, Edmond de Rothschild Asset Management (France):« Since commodities prices started to drop, markets have revised downward their inflation anticipation in Europe ». “European sovereign debts are now acting as safe havens for investors nervous about China. As a consequence, interest rates in Germany and other core European debt have decreased since the beginning of the year”.