Flanders Suggests China Bubble Not Burst Yet

Flanders Suggests China Bubble Not Burst Yet.

In a week where we have seen markets tumble globally and the Royal Bank of Scotland suggesting that all of their investor clients should sell out of equity markets as they are predicting oil prices to fall to $10 per barrel and equity markets to crash by 20% in 2016, we have now seen a former BBC correspondent Stephanie Flanders (JP Morgan asset Management European Strategist) suggest that the financial crisis in China with debt is a bubble that has not yet burst and their overall outlook for markets is increased volatility worldwide but given the lack of correlation between Western markets and China, the impact may not be as great as others are predicting.

In JP Morgan's latest quarterly update they suggest that China's total share of global debt as a percentage of GDP is exceptionally small compared to that of the US proportion of debt as a percentage of GDP in the credit crunch crisis of 2008.

Comment

Despite China's economic slowdown, their economy is still growing at a rate of above 6% per annum, this is treble what the UK and US economies are projected to grow at. We suggest that whilst China is the world's second-largest economy, they are still growing and therefore will be a key driver for world economies over the coming years. Therefore, is the volatility in global markets driven more by speculators where they make money when markets rise or fall and do not make money when markets are stable?

In addition, fuel prices are low which fundamentally affect the revenues of the Middle East rather than the West or the Far East and therefore most businesses should be more profitable. We too expect market volatility in 2016 with little growth if any in equity prices but there will always be trigger points such as the US elections as well as investors being 'spooked' when any positive or negative news is published.

Expect yet another rollercoaster year with the only way to make money in equities is to buy low sell high and be more proactive with your fund switches.