The interconnectedness of global markets is a boon and a bane to investors. The week began with what was dubbed Black Monday, although this spurious connection to the infamous 1987 Black Monday is anything but accurate. On that day, Wall Street plunged 22%; fast forward 28 years later, and Wall Street’s drop was around 500 points, but that comprised just 3%-4% of the Dow Jones Industrial Average. London is not immune to what happens on Wall Street, or Shanghai for that matter, and the FTSE 100 index plunged on Monday, 24 August, recovered somewhat on Tuesday, lost ground on Wednesday and finally turned the corner on Thursday, 27 August. This seesaw performance has traders licking their lips, but unsure of which direction markets are going to move.
A few pointers are in order:
China is the proverbial elephant in the room – the bear in this case. The authorities in China have begun cracking down on financial institutions, banks and other black market operations that have facilitated massive capital flight from China. The maximum limit that individuals can withdraw per year is $50,000, but banks have been allowing much more than this.
The Chinese economy is in trouble, as evidenced by the numbers from Beijing. Manufacturing figures are down, GDP is at a 25 year low, interest rates have been cut 50 basis points and government intervention in the stock markets has been excessive.
China has also been selling massive quantities of foreign currency reserves to prop up the ailing CNY.
Central banks all over the world have been assuaging investors by continuing to support the global economy with monetary easing.
The authorities in Beijing have been ploughing hundreds of millions of dollars into blue-chip stocks, to bolster national pride ahead of the WW2 victory celebrations over Japan scheduled for September 3, 2015
The European Central Bank intimated that the €1 trillion QE program could continue beyond September 2016, and this also allayed market fears.
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