International Partners says it is convinced that China’s economy will avoid a so-called ‘hard landing’ despite unprecedented volatility in its mainland stock indices and weak economic data.

The world’s second largest economy has been under scrutiny since the bubble in its equity markets gave way to a huge rout in Mid-June. From concerns about over-valuation in Chinese stocks, investors have grown more jittery about the country’s massive export sector which slumped by 8.3% in July compared with the same month a year earlier.

“The central bank’s decision to devalue the yuan (renminbi) soon after that horrendous export data led investors to believe that the Chinese authorities were panicking. That coupled with the ineffective intervention in the stock markets and interest rate cuts has created a narrative in which investors are expecting another shoe to drop,” said Mayumi Sheppers, Asian Capital Markets strategist at International Partners.

“We don’t subscribe to that narrative. China isn’t Europe or the US – they have a lot of tools they can use to temper the pace of decline in GDP growth. One is interest rates, another is the reserve requirement ratio and of course, they can weaken the yuan further using their massive foreign currency reserves,” she added.

International Partners does warn investors against trying to pick a bottom in the Shanghai and Shenzhen Composites. Both indices have effectively given up their gains for 2015 and there are few signs that selling pressure is exhausted.

“Without doubt, the next few months will prove challenging for the Chinese authorities but it at least has the policy tools to ward off the kind of debilitating economic crunches we saw in Europe and the US,” concluded Sheppers.

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