China stock volatility argues for more market reforms, Capital’s Rothenberg said in last interview

In the 45 years that Jim Rothenberg spent as an investor with one of the world’s most consistent fund management firms, there was one key constant – periods of intense volatility and major market gyrations.

Speaking to the South China Morning Post just as mainland equity markets were engulfed in their worst volatility storm in seven years, the chairman of the US$1.4 trillion Capital Group of Companies took a typically long-term view of developments and remained focused on the key thing that has made the firm he headed one of the world’s best money managers.

“I don’t spend a lot of time investing in markets. I invest in companies,” Rothenberg told the Post.

It was one of the last interviews the 69-year old fund chief gave before his sudden death on Tuesday from a heart attack.

“Capital markets are animalistic,” Rothenberg said on a visit to the firm’s offices in Hong Kong, one of six it has in the Asia-Pacific region, as China’s stock markets were sinking towards three-week cumulative losses of some US$3.9 trillion after a rampant run spurred on by a series of interest rate cuts and pro-market reform policy statements from Beijing in previous six months that had led to a more than doubling of prices.

The market unwind could be barely halfway through, with a key price-to-earnings ratio still running at roughly twice the level analysts say is fair value and some US$600 billion worth of margin debt and collateral pledges left to clear.

“One of the things that Chinese regulators are going to have to get their arms around is that the more that you open these markets to achieve the objectives they are talking about, the less they are going to be able to control the outcomes. They don’t always go up, bubbles happen,” Rothenberg said. “The question is, conceptually, can you handle that volatility?”