Monday, January 18, 2016

The Impact Of China’s Slower Growth On Global Financial Assets

The Impact Of China’s Slower Growth On Global Financial Assets
Connecting The Dots

Many current market pundits claim that the present reaction to slower Chinese Growth is overblown because there are minimal direct connections between the Chinese Financial System and the Triad [North America, Europe, and Japan] since Chinese banks lend almost exclusively to Chinese firms. Further there is minimal exposure by US firms or banks with the at-risk State-owned Chinese enterprises. Therefore as long as US growth remains steady US markets will be OK.

From their perspective the dramatic recent drops in the US, Japanese and European stock markets in concert with the sharp drop in Chinese markets as well as in oil prices is empathetic and not substantive except in the rare situation such as Yahoo due to their large ownership in Alibaba, the Chinese Amazon. If one accepts this viewpoint US, European and Japanese investors should look at the recent drops as only market corrections and not as something systemic that could impact the global financial system and portfolio values longer-term. 

However, accepting this facile explanation at face value would be a mistake similar to accepting Wall Street’s view that the sub-prime market crisis was manageable because over the long-term US housing prices tended to rise.

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