Tag Archives: Shanghai stock exchange

Crisis in August and the role of China in the current markets

This summer was especially stormy in the financial markets. The cocktail joined two ingredients:

  • First of all, the unending Greek crisis, which played its last show in July after the failed referendum. It is still doubtful if the last bailout will solve the problem or just delay it.
  • Secondly, the Chinese crisis. This is more important, as it showed that China has already a big influence in the world economy and finances. As it is explained by The Economist, the world became nervous. China is already a very relevant benchmark for investors.

The Chinese crisis has shown that the development in the world second (for a short term) largest economy is still weak, as it needs the strength of several institutions and mechanisms, besides its own model. The surprising devaluation was the signal that investors had to flee. However, as the T-Report chart shows, the performance of the Shanghai market is 41% higher compared with August 2014.

1-year chart of Shanghai Exchange

The problem is not limited to China, because the country is one of the main debt holders, commodity consumer and investor in emerging markets. As the dominoes, the pieces begun to fall:

  • The price of commodities is in the lowest point for years.
  • The emerging countries set the alert, as the outlook is that the Chinese commodity demand fall. Then, market evolution and economic forecasts began to be quite negative.

In the middle of this storm, the Federal Reserve showed doubts about the anticipated decision of hiking the rates. Under the current market conditions, the monetary institution thinks that this decision could be worse for future economic developments.

But the question for a common investor is: what can I do? Debt from developed countries offer low interests, developed exchanges drop and emerging exchanges, which formerly could help as an alternative, are even worse. Even China, which sailed in the middle of the Great Crisis with some success, shows its feet of clay. Then, what?

Comparative T-Advisor chart with 4 main exchanges

An investor strategy should be focused on capital preservation. These were our results in the T-Advisor European model portfolios, following this strategy:

Exchange

Loss in the last 30 days

Model portfolio loss in the last 30 days

DAX

-12.47%

-6.22%

IBEX 35

-11.3%

-7.42%

FTSE 100

-9.34%

-0.94%

The only solution in the current market turmoil is clear: good information about assets, tools to select the best ones, rebalancings and a strategy centred in capital preservation to reduce possible losses.

Global market trends: markets in the second quarter

Trends in the second quarter of the year have been dominated by the Greek crisis. After the election of left-wing party Syriza, Greece and the UE tightened the negotiations about the payment of the debt. The result is already known: Greece defaulted the IMF. The crisis is not only for the Greeks, but also for the whole European system, as one of the partners of the Euro did not follow the established rules. What will be the next? Referendum in Greece? Grexit? New elections? The future is more open than ever. We can read several articles in the media with both positions blaming the troika and the Greek government for the current situation.

Regional global trends in T-Advisor

Generally speaking, there are some differences between the market evolution in US and Asia, on one side, and Europe and Latam, on the other side. The evolution in Europe swung depending the news around Greece, what has altered a regular trend: sudden ups and downs happened when somebody came with a new statement or rumour. Above all, investors in Greece did not experience the best results, as this T-Advisor chart shows:

5-year Greek stock exchange evolution

In Latam, the troubles in the stock exchanges are linked with the strength of the dollar. These countries are very dependant from commodities and exports are being punished by the strong greenback, that rises against all currencies as the Euro weakens and the US Federal Reserve considers hiking rates.

The more positive regions are US and Asia, but the improvement in the markets has also shadows. Asia is the region where there are more alerts. The overheated Chinese stock exchange in this year has begun to fall severely. Recent measures, as a rate cut, were not enough. Shanghai has felt a 25% since the peak on June, the 12th, and the effects are still to watch.

5-year Shanghai stock exchange evolution

Finally, US plays with strong figures and the stock exchanges are counting them. However, there are still doubts about a possible rate hike, because the Federal Reserve stated that they need more evidences about the improvement of the labour market. The next job reports in US can be decisive to preview the chances of an increase of the rates, which will can move strongly all markets (stocks, debt and currencies). Well, investor, be ready, because the road has bends.