I appeared live on Channel News Asia on Tuesday morning at 6am SGT. My questions and my responses in the form of brief notes are below:
Q1. Are we seeing a financial crisis developing in global markets?
The signs are certainly there. When you have the Dow Jones Index fall over 1000 pts within minutes of opening, that is not a good sign. The markets could easily fall another 10 – 15% before settling or bottoming out. When markets fall as sharply as they have, they almost become self-perpetuating. Panic sets in and fuels more selling leading to substantial falls. When you look at the most recent global financial crisis, this is exactly how it started. Strong declines in global indices and increase in volatility.
Q2. Is the current panic essentially ‘made in China’?
When you read headlines of ‘China’s Black Monday’ and ‘the Great Fall of China’ it is quite easy to see where the fingers are being pointed. Yes there are definitely growing concerns about China’s markets and Beijing’s efforts to control things. A lot of fingers are being pointed at the leadership and criticism leveled at their inability to perhaps understand the nature of the problem and/or having the tools to intervene.
There has also been the incredible rise in the Shanghai index since the beginning of last year and speculation fueled allegedly by promises to keep the markets sustained. These promises haven’t been carried through causing a lack of confidence in the markets. This equities decline all started around 11 August when Beijing devalued their currency, which is an admission that things were not so rosy and they needed to do something to stem the growth decline.
Q3. Has the market sell-off anything to do with uncertainty about looming US interest rate hike?
Only a little bit. China has been the major driver of the recent strong declines as I just mentioned. However we have been talking all year about the Fed looking to raise rates for the first time in 9 years. For the last few months September has been the favourite however only this month have the Fed suggested waiting a little longer after airing their concerns about a lack of inflation and global growth. So when a central bank expresses their concern over growth, that has an impact. This would have no doubt played a small role but we cannot really excuse China’s say in the last couple of weeks.
Q4. How long more before we see some stability in financial markets?
What a great question! No one knows, however many will be hoping it is soon. Some investors will be looking closely at China to see what they will do next. Perhaps looking for better data out of China or some strong policy action to control the markets a little. At some stage you may also see bargain hunters come into the market looking to buy in at low prices. You would be a brave person to be attempting that now but at some stage it may happen.
Q5. Australia’s benchmark share index suffered its biggest percentage drop in 6-1/2 years yesterday. What can we expect today?
More of the same. When the Dow Jones loses 588pts and the S&P500 nearly 4%, Asian equities have little room for gain and are highly likely to follow suit. A further 3-3.5% fall is widely expected and is hinted at by futures markets.