Global financial markets will use China’s recovery as a sentiment tracker, affirms the CEO of one of the world’s largest independent financial advisory and services organisations. The comments from Nigel Green, the chief executive and founder of deVere Group, come as European and Asian-Pacific markets and US futures fell after a stream of stark headlines over the weekend.
His observations also follow Chen Yulu, a vice governor at the People’s Bank of China, giving a press conference on Sunday at which he noted that two ways the country is contributing to global financial recovery is by maintaining domestic financial markets’ stability and by being involved in international talks on macroeconomic policy collaboration.
“Since the World Health Organisation upped its rhetoric on COVID-19 due to the rapid spread, financial markets - including stocks, oil, government bonds and gold - have experienced wild bouts of volatility and major sell-offs,” noted Green. “Investors are now not only monitoring the habitual markers like the price of gold and oil and international fiscal and monetary policies, but they’re also tracking the global health policies and Coronavirus-death tolls.”
He continued: “The epicentre of Coronavirus has shifted from China to Europe. Europe has now registered more Coronavirus cases and fatalities than China. Almost immediately, the Chinese authorities launched intense lockdown measures to try and halt the outbreak. It appears to have been successful, with cases having fallen considerably. However, the adverse impact on the world’s second largest economy - which drives in a large part - the global economy - has been significant.”
The economic impact in China has indeed been significant. Cross-border and domestic trade activity in China fell by more than half during a single week in February according to data from Tradeshift. Analysis of business to business (B2B) payment data in the region, carried out by Tradeshift’s analytics team, shows the volume of Chinese domestic and international transactions processed across its network fell by 17% between January and February as factory closures aimed at stopping the spread of the Coronavirus amplified traditionally slow trading conditions around Chinese New Year.
Week-on-week analysis showed overall trade activity in the region fell by a remarkable 56% in the week commencing 16 February following a period of steady decline throughout January. Domestic supply chains were particularly badly affected, with orders placed between local businesses falling by 60%. The number of transactions between Chinese businesses and international firms dropped by 50% during the same period.
“The sheer speed at which the Coronavirus took hold in China has sent a shockwave through the delicate ecosystem of complex supply chains spanning the globe,” commented Christian Lanng, CEO of Tradeshift.
The rest of the world is now looking to China to see how the recovery efforts against the virus there impact its economy. “...investors around the world will now be looking at how China gets back on its feet economically,” said deVere Group’s Green. “Did the extreme lockdown work? Were the public health facilities adequate? Will there be another outbreak as activity resumes? How will the authorities now kickstart the economy? How will these decisions, and the success of them, impact the rest of the world? I’m confident that global financial markets will stage a relief rally when there is a definitive signal that the infection rate is dropping and that cases have peaked. Investors will come off the sidelines and prices will jump.”
“Therefore, the next stage in China’s public health and economic recovery is critical,” concluded Green. “What takes place in the People’s Republic will be used by investors as a sentiment guide and a gauge for the rest of the world, particularly the US and Europe where COVID-19 transmissions are yet to peak.”
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