The problem with China isn't just a slowdown, it's investors freaking out over it, according to a new report by Goldman Sachs Group Inc.
"We believe that developed financial markets will, in all likelihood, overreact to deteriorating conditions in China," a team led by Sharmin Mossavar-Rahmani, chief investment officer at Goldman Sachs Private Wealth Management, wrote in a paper.
"We conclude that the direct and indirect economic and banking sector exposures to China are not of a scale to have significant impact on major economies and financial markets."
What to do? It's hard to tell markets to be calm about concerns over the world's second-biggest economy. China faces myriad challenges, from corruption to unreliable economic data, and Goldman Sachs expects the country to create volatility for the next five years, infecting other emerging markets. Their recommendation is to reduce exposure to these vulnerable assets.
China did not start 2016 on the right foot - for example, the decision to implement then abandon a controversial stock circuit-breaker system - and more mishaps are likely.
"Moreover, as evidenced by the measures taken to manage the equity and currency markets over the last several months, the risk of policy mistakes looms large," according to the report, entitled "Walled in: China's Great Dilemma."
Goldman Sachs's investment management team showed how the impact of slower growth in China on the global economy has been "overstated" by charting exports as a share of gross domestic product. In the US, exports to China account for just 0.7% of GDP. It is 2.3% for emerging markets, and as high as 10.3% in South Korea.
China has shaken investor confidence with surprise currency moves and confused with chaotic market regulation. Chinese Vice President Li Yuanchao told Bloomberg in Davos this week that authorities are willing to keep intervening in the stock market to make sure that a few speculators don't benefit at the expense of regular investors.
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"We believe that developed financial markets will, in all likelihood, overreact to deteriorating conditions in China," a team led by Sharmin Mossavar-Rahmani, chief investment officer at Goldman Sachs Private Wealth Management, wrote in a paper.
"We conclude that the direct and indirect economic and banking sector exposures to China are not of a scale to have significant impact on major economies and financial markets."
What to do? It's hard to tell markets to be calm about concerns over the world's second-biggest economy. China faces myriad challenges, from corruption to unreliable economic data, and Goldman Sachs expects the country to create volatility for the next five years, infecting other emerging markets. Their recommendation is to reduce exposure to these vulnerable assets.
China did not start 2016 on the right foot - for example, the decision to implement then abandon a controversial stock circuit-breaker system - and more mishaps are likely.
"Moreover, as evidenced by the measures taken to manage the equity and currency markets over the last several months, the risk of policy mistakes looms large," according to the report, entitled "Walled in: China's Great Dilemma."
Goldman Sachs's investment management team showed how the impact of slower growth in China on the global economy has been "overstated" by charting exports as a share of gross domestic product. In the US, exports to China account for just 0.7% of GDP. It is 2.3% for emerging markets, and as high as 10.3% in South Korea.
China has shaken investor confidence with surprise currency moves and confused with chaotic market regulation. Chinese Vice President Li Yuanchao told Bloomberg in Davos this week that authorities are willing to keep intervening in the stock market to make sure that a few speculators don't benefit at the expense of regular investors.
Click Here To Register For Free Trial Services OR Give A Missed Call : +6531581402 Follow Us On Twitter : www.twitter.com/epicresearchsg Like Us On Facebook : www.facebook.com/EpicResearchSingapore Need Any Assistance Feel Free To Mail Us at : info@epicresearch.sg
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