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    US Stock Markets 'Over-Reacted' to Chinese Currency Adjustment

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    The managing director of the Sag Harbor Group claims that the US stock market is now stabilizing after panic selling in response to China’s minor devaluation last week, while China’s underlying fundamentals for continued growth remain sound.

    WASHINGTON (Sputnik) – The US stock market is now stabilizing after panic selling in response to China’s minor devaluation last week, while China’s underlying fundamentals for continued growth remain sound, the managing director of a major private equity firm told Sputnik.

    “The markets have now recovered,” James Henry of the Sag Harbor Group said on Friday. “This was all a tempest in a teapot.”

    The market volatility that started on August 21 and continued into this week on Wall Street was an “over-reaction to the activity in China,” Henry argued.

    From June 2014 to June 2015, China experienced an overheated stock market, Henry said, noting “there had to be a strong correction and it has happened.”

    Amid concern over the Chinese market, Beijing lowered interest rates and devalued its currency, but Henry pointed out the devaluation was minor.

    “China only carried out a three percent currency devaluation. It was an attempt to allow the currency to float as the International Monetary Fund had requested,” he said.

    Far from undervaluing its currency, China’s move was a minor correction to the much more significant rise in its value over the past decade, he continued.

    Over the past decade, the renminbi, China’s international trading currency, appreciated from eight to the dollar in 2005 to 6.2 to the dollar now, Henry pointed out.

    “For our stock market to fall 10 percent in value briefly in response [to a minor Chinese devaluation] is kind of crazy,” he argued.

    Henry also insisted that the fundamentals of the Chinese economy remained healthy despite concerns over slowing growth.

    “The Chinese economy is continuing to grow strongly,” he said, adding the world’s second largest economy is expected to register 6.8 percent growth this year after decades of solid growth.

    “This is a remarkable growth story. I don’t think there is a reason for that story to fall apart,” Henry said.

    Sag Harbor Group is a US technology-focused private equity venture and consulting firm whose clients have included AT&T, AT Kearney, Calvert Fund,, ChinaTrust, General Motors, Hewlett-Packard, IBM/Lotus, Intel, Lucent, Merrill Lynch, the Rockefeller Foundation, UBS Warburg and Volvo.


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