Fear about China’s economy can be overdone. But investors are right to be nervous
Date: Aug 29th 2015
ONCE the soundtrack to a financial meltdown was the yelling of traders on the floor of a financial exchange. Now it is more likely to be the wordless hum of servers in data centres, as algorithms try to match buyers with sellers. But every big sell-off is gripped by the same rampant, visceral fear. The urge to sell overwhelms the advice to stand firm.
Stomachs are churning again after China’s stockmarket endured its biggest one-day fall since 2007; even Chinese state media called August 24th “Black Monday”. From the rand to the ringgit, emerging-market currencies slumped. Commodity prices fell into territory not seen since 1999. The contagion infected Western markets, too. Germany’s DAX index fell to more than 20% below its peak. American stocks whipsawed: General Electric was at one point down by more than 20%.
Rich-world markets have regained some of their poise. But three fears remain: that China’s economy is in deep trouble; that emerging markets are vulnerable to a full-blown crisis; and that the long rally in rich-world markets is over. Some aspects of these worries are overplayed and others are misplaced. Even so, this week’s panic contains the unnerving message that the malaise in the world economy is real. [FULL STORY]