Investors take heed of the tale of two Chinas

CHINA'S stock market cannot be taken at face value and the quadruple-whammy events of January 2016 are a case in point. The CSI 300 index ended 21 per cent down for January!

The market selloff, coupled with fears of a sharp yuan depreciation, George Soros's and several other major hedge funds' declaration that they are shorting the yuan big time, news of huge capital outflows (as large as US$1 trillion in 2015 by some measures) and news that China's GDP (gross domestic product) growth slowed from 6.9 per cent in Q3 2015 to 6.8 per cent in Q4 all came into play. It can look like investors were pulling out en masse and that China's currency, economy and stock market are in dire straits.

The underlying reality is starkly different and is seldom discussed in public forums. Two events were at the heart of the sell down in January and both are unrelated to the state of the economy, the yuan or corporate fundamentals.