China’s Woes!


Markets have been reacting to poor data that has recently came out of China. Trading figures are still weak and a recovery remains uncertain.


Chinese exports have suffered their worst drops for the last seven years. Imports were down by almost 14% and exports were over 25% down. Needless to say commodity prices are being effected globally and some of China’s largest purchases of years gone by, were for natural resources, such as crude oil, copper and iron ore. These purchases have now drastically reduced and fuelled a depression in commodity prices.


One of the biggest issues in relation to the volatility in the Chinese stock market, is the fact that a majority of its investors are retail, whereas more established indexes like the UK’s FTSE and the US’s S&P are institutional in their makeup; In fact, around 80% of Chinese market investors are retail.


One area that has fuelled this issue, is that the Chinese government has clamped down on excessive lending from the banks, which would aim its retail investors towards property instead of stocks and shares. This coupled with easing barriers to entry, for companies listing on the markets, has given a huge turnaround from property, to equities and this has fuelled past rallies, which seem to have stemmed in recent months.


What this has done, is lead to a market fuelled by momentum rather than fundamentals and it was only a matter of time, before these great gains, came tumbling down to more realistic levels.


It is very difficult to predict what is to come for China’s markets, but this turmoil has now rippled throughout the world and governments need to act fast with stimulus and polices, that will hopefully stem any further issues moving forward.


Needless to say, China’s GDP prediction of 6.5% growth for 2016, will most likely be significantly lower. But in the same time, whatever the figure is, most developed economies will still perform worse for their own GDP rate.


With all that is going on, we can’t ignore the fact that China has an USD11 trillion economy and certain sectors are huge trillion dollar segments. It is extremely difficult for analysis on countries of this magnitude and the following areas seem to be rapidly changing year on year:

 

  • Technology is progressively replacing people, hence manufacturing employees have uncertainty in their jobs and the only solution, is having the government step in and reskill these people.
  • There is huge volatility in the financial markets and larger institutions are looking for more modern products as opposed to deposits and property in the Chinese economy
  • Agricultural growth will happen and this is mainly due to Chinas own domestic demand for food and of higher quality produce.
  • China will become a more centralised economy.
  • The middle class are moving out of the major cities at unprecedented rates, this is because infrastructure can’t keep up.
  • China’s offshore investment is still growing


These points are just some of the aspects currently changing in the Chinese economy and it is increasingly difficult to ascertain which way the economy will go in the short term; this coupled with unreliable data and other global economic woes will mean a bumpy ride ahead.


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