Investor George Soros Foresees 2016 Market Crisis
For the larger half of a century, China has made unprecedented economic advancement, making it today’s second largest economy. However, market analysts have begun to question the longevity of the East’s economic powerhouse, as CNBC reports, following numerous trade freezes within the first week of January. Soros believes that “China is struggling to find a new growth model,” as he stated to a Sri Lankan economic forum January 7th. From what he has seen so far, Soros fears that we may be approaching an economic crisis on par with 2008’s market fiasco.
As of January 1st, China has incorporated the addition of circuit breakers, or trading curbs, into its trade regulations. That is, in the event that the CSI 300 should fall by five percent, foreign trade is halted for a minimum of fifteen minutes. Should it proceed to fall by seven percent, trade for the entire day is frozen. On the day that Soros issued his commentary, the circuit breaker had been triggered a mere thirty minutes into the business day. Given China’s global influence as a market superpower, the repercussions were felt all throughout the global market.
Daily Mail says oil prices fell dramatically; the Dow Jones Industrial Index plummeted to lows unseen within the past three months; London reports the most disappointing opening-year week since the year 1988. Even more alarmingly, this was not the first meltdown of the Chinese market within that same week.
The global market is making a transition back to positive interest rates, and Soros proposes that this shift is partially what is responsible for economic instability in developing countries. Overall, he cites the situation as indicative of a “serious challenge,” one which has striking similarities to the financial crisis experienced in 2008.
China’s governing power, fortunately, has begun seeking solutions to its upending economic downturn. By the year 2020, China hopes to improve the yuan’s convertibility. An official statement released by China claims that the country may even be dismantling the establishment of the circuit breaker altogether, replacing it with more lucrative regulations. Whatever the case, it may be that only time can determine the outcome of this year’s market. Already, Chinese banks have slashed interest rates to unseen lows, and the Chinese government has poured billions in financial funds into stimulating the economy.
As a general precaution, Soros encourages investors to be “very cautious” as we weather through this stormy economic climate.