Chinese Premier Li Keqiang said on Tuesday he wouldn’t allow the post-Brexit panic that roiled global currencies and stocks to send the country’s financial markets into a tailspin, an indication authorities would intervene if needed to prevent market chaos.
“It’s hard to avoid short-term volatility in China’s capital markets, but we won’t allow rollercoaster rides and drastic changes in the capital markets,” said Li, speaking at the World Economic Forum (WEF) in the city of Tianjin.
“It’s important for all of us to work together to strengthen confidence, prevent the spread of panic, and to maintain the stability of capital markets.”
The assurance came as the post-Brexit turmoil that swept global markets and sent the pound sterling to a three-decade low last week abated.
China’s financial markets were subject to wild downturns in 2015 and early 2016 as regulators struggled to manage speculative investment and amid wider concerns about the economy.
However, some calm has returned to stock and currency markets after heavy intervention by authorities since then.
The yuan slumped to its weakest level against the dollar since December 2010 on Monday, but recovered slightly on Tuesday and equity markets have risen this week.
China’s strict capital controls have helped shield Chinese stocks from the worst of the global market turmoil, which was triggered by Thursday’s the Brexit vote, although confidence remains shaky.
Premier Li’s comments followed messages from China’s central bank that the yuan has been basically stable against a currency basket, as are market expectations for the currency.
Policymakers have said financial and economic reforms will continue and expect the direct impact on the Chinese economy to be limited.
Lou Jiwei, China’s minister of finance, on Sunday described the initial market reaction as “knee-jerk” and “excessive” while Xu Shaoshi, head of China’s top economic planner, expected the economic impact to be relatively small, despite some hit to investment, trade and capital.
However, some analysts expect China to see significant impacts from events in Europe, especially in foreign exchange markets.
“The Brexit situation…creates a little bit more financial markets volatility,” said Craig Chan, Nomura’s head of Asia ex-Japan FX strategy.
“I can imagine the case that China becomes much more vulnerable than the numbers would suggest because exporters would be hoarding foreign currencies. So China is pretty vulnerable when it comes to external shocks or risk of deterioration in the external environment.”
The Shanghai branch of China’s foreign exchange regulator on Tuesday denied media reports that individuals were being barred from making certain foreign currency purchases.
This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.