Panic in the Chinese market, can it lead to a correction in other markets? This should be discussed today.
We are all seeing the stock market crash enough, represented by an incredibly strong market economy. But the economy with its own color in political color. China has always been a country with tough political views, decisions and actions. This country is ruled by the Communist Party, but unlike the Soviet Union, which was also ruled by the Communist Party, China’s economy is not planned, as in the USSR. They have it on the market.
However, the format of the Chinese economy, despite its adaptability to self-regulation, presupposes political regulation. What’s the point? No matter how profitable the projects of the companies and the companies themselves are, the political interests of this country are higher than the economic interests. Now, in fact, China wants to reform its it-sector with the aim of complete openness of information systems for internal use and complete inaccessibility to some kind of regulation for the external world. This is where initiatives such as
- Banning bitcoin and cryptocurrency mining
- Total control of the crypto-sphere
- Introducing cybersecurity legislation.
Thus, China strives to be the world leader in Cybersecurity, but such a sphere as the sphere of Internet education (this is mainly) has come under the blow of regulation, the entire Internet sphere is being corrected, and the stock market in the form of ETF FXCN is also in a significant correction.
What is the main question now? Will the correction from the Chinese market be transferred to the rest of the world markets, as was the case with the spread of the coronavirus from Wuhan? This question cannot suggest an unambiguous answer. But let’s try to speculate.
On the one hand, all markets are interconnected – this is a fact. And the fall of one market, especially a large market, of course, can affect the whole world. And in particular, China’s stock market is very capital intensive, second only to America.
On the other hand, intervention by the authorities through state regulation is a risk for internal investors, but also for external ones investing in the Chinese economy through shares of Chinese companies. And in this regard, China has shown itself to be unpredictable. It is impossible even to assume that the next time will become the object of his attention. And this, of course, does not create the basis for investment. This means that investors can refuse to invest in Chinese companies on American exchanges, since these are additional risks, in addition to the risks of delisting Chinese companies from American exchanges. And this is already a correction in America.
But my confidence at this stage is that now, everything that is happening with China and in China is only emotions. I have a number of reasons for this:
- Regulatory initiatives are still under discussion, they have not been adopted. There are only thoughts of the authorities to make Internet education non-profit, but there is no actual decision-making. So it’s emotions for now.
- Think about it, the Central Bank of China expects to invest about $ 1 trillion in liquidity in the stock market, do you think this will be enough to win back the fall? And then, what is better to invest in if you have $ 1 trillion: in good companies or good companies that are 10 times cheaper?
- Trading volumes. The China ETF chart is drawing a falling knife, but look at the trading volumes across the internet. These volumes, I dare to consider as stopping. They are just incredible. Yes, I agree, someone sells in a panic. But someone is buying up soberly. That’s all love.
In summary, I would like to note that yes, China has collapsed significantly. All markets are interconnected and a strong correction in one can lead to a correction in others. But now the situation is not quite the same. China’s economy will not be affected by the non-commercialization of the $ 100 billion industry. These are tears for her. But even these tears so far are only “Yaroslavna’s cry”, that is, far-fetched and empty. As there were no actual decisions made. In addition, the presence of incredible volumes may indicate the end of the emotional phase. Therefore, we have a recovery of this fall ahead of us, and not a transfer of this panic to other markets. All only successful investment.
With you was Alexander Perfilov, the author of the telegram channel “Look at the Market” @perfilov_invest