China’s business powerhouse grapples with Corona; global markets ignore the facts – Guest Editorial

Meir Velenski, CEO of Velenski Financial Group, is a market expert on FX and CFD trading and a consultant to firms in the electronic trading industry.

The biggest impact on world markets in the last 20 years has been China. We will look here at the positive impact on global markets, Trade business and the latest Corona virus.

As everyone knows and as every business knows the growth of China and the impact it has had on the global economy has been significant.

In fact if you look back at recent events such as the banking crisis of 2008 it was only China and the huge growth it experienced is what saved the global economy. Canada, for example, attributed its lack of involvement in the recession that occurred following the global credit crunch during that time to conservative banking practices, when it is absolutely clear that the real reason was the vast Chinese investment into Canadian banks by Chinese property developers, who then used that capital to build giant, ultra modern infrastructure across Toronto.

Not only has China embraced overseas companies and impacted on the import export trade gap it has also allowed many FX,CFD and banking investment operations to flourish.

Background

China was the sleepy giant back in the 80’s and 90’s. Around the turn of the Millennium the Communist authority began to open their borders a little and allow overseas Capitalist countries and firms to set up shop in China.

Before the threat of Trade Sanctions and tariffs it was the World that was a Net importer of Chinese Goods. Only since the Trump Administration has there been a slight change in approach. This has angered the Chinese with a tit for tat attitude.

In fact one the key weapon that China has to use against the USA is the potential sale and offloading of T notes as they are the biggest holder and buyer of Government Treasury notes.

In addition to the open border approach China also encouraged and allowed the positioning of FX trading firms from Europe and the UK to set up shop. This has allowed all the players in the FX arena to tap into a new market that dwarfs anything they have set up now.

So as a whole the China marketplace has been a healthy hunting ground for global players to access a new market and use China a base for launching into the Asia and south east Asia countries.

Present Position

China is still very aggressively looking to outpace the US as the leading global player in the economy. The country still has some way to go but it is clear that it is posing a major threat to the long term status of the US as number 1.

With that in mind, you would expect China to continue to promote overseas firms setting up in mainland Communist China as long as they play by the rules. The last thing you need is to break the rules in China as the penalties are not only financial but can be a prison sentence also.

China has the fastest growing population and a potential marketplace that will dwarf any other economy. There may actually come a day when even the ruling communist party may also disappear, but that is currently very unlikely as it is the supporting structure of every aspect of personal and commercial life in China, and has enabled the country to become such a gigantic domestic economic force.

The Virus that has blighted China

However, along comes an unknown virus that no one has heard of and the lights go out in China. Not only are all domestic and international flights suspended or cancelled, but all exports now have restrictions put on them. In addition all western developed countries are now so concerned that trade between China and the west has fallen to all but a complete stop.

What’s strange though is that when looking at the reaction in the financial markets it has been insignificant. In fact apart from the first few days when Volatility hit all-time highs and the US markets lead the European markets lowers little has happened.

You have taken the second biggest economy ( in my opinion the biggest) off the table and the impact on financial markets is ZERO.

This can mean one of two things. Either there is a global market maker conspiracy that does care or is concerned with the Global impact of a virus that shuts down China or they simply don’t know how to price in such an event.

Market reaction

The driver in all markets is FEAR. This is what drives the individual to trade and this is what drives the banks to make their trading decisions. What’s interesting though is that, initially the market did react very negatively to the news and corrected ever so slightly. However, it appears that the momentum in Global financial markets is so heavily weighted to the up side that all news is ignored.

The impact of China effectively stopping trading and all traffic to and from being suspended has been ignored and not even priced in. This is very strange and raised more concerns as to how actually is driving the Financial markets forward.

At some stage if this continues then the impact will just grow and the fallout will be so great that Federal governments will once again have to act.

China was going through a downturn before the Corona bust out. Post Corona and all the damage that has been done on trade will impact the financial markets and the FX markets.

It seems to be “Who cares as long as the train is rolling”.

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