George Soros has said on Bloomberg that he has seen a striking resemblance between the opening week of the markets in the new year and what had occurred during the the 2008 financial crisis. Of great concern to Soros, and all other investors is the disappearance of almost two and a half trillion dollars of global equities in only about week. This is a very bad sign for investors and banks that are looking to invest in global equity products.
While visiting the island nation of Sri Lanka as an honorary guest speaker at a economic forum in the capital of Columbo, George Soros mentioned several other key indicators that the economy may be going towards the direction of a recession, as had occurred in 2008. Soros has highlighted China as a prime indicator of major trouble in the global markets. The Chines economy is struggling right now, and not just because of dropping stock prices and commodity prices. China is struggling to come to grips with a new economic growth model as its economy is seeing a major shift from manufacturing, which has long been a staple of its economy.
A weakening Chinese economy is bound to have ramifications for the rest of the world because of the interconnectedness of world economies nowadays. Chinese is the second largest economy in the world right now, only behind the United States of America. A struggling China is going to have a negative impact on the rest of the world, because so many countries economies are directly or indirectly linked to the Chinese economy.
A sinking Yuan, which is the Chinese currency only serves to reinforce investor fears that the Chinese economy may be struggling and on the verge of recession. Already artificially low, because of devaluation, a plummeting Yuan can wreck havoc on the Chinese and global economy. The Chinese government meanwhile, is trying to minimize the damage to the Chinese economy, by infusing billions of dollars into its domestic economy. These measures are being taken to prevent the country’s economy from stagnating and in effect shrinking due to the global slowdown that has occurred in the beginning of 2016.
Soros warns investors to be very cautious right now and to keep a close eye on China’s economy. China is a major player in the world economy right now, and ignoring them can cost an investor a fortune and lead to massive losses. The retired hedge fund manager’s echoes of caution seem to be supported by numerous analysts and economists. The Chicago Board Options Exchange has estimated that volatility has increased by about 13 percent in only a week. A Japanese stock average volatility index has increased by more than 40%, showing that tumultuous times are in store for stocks, commodities and global economies.