The consistently declining prices of global crude and commodities and China’s slowest growth since 2009 are causing panic selling across global markets as entities like foreign institutional investors hurriedly exit markets. Global financier George Soros has been quoted as saying “China has a major adjustment problem”, and has warned that Beijing is transferring its problems to the rest of world by devaluing its currency. However, the panic gripping the global markets is hardly justified or based on fundamentals. The IMF’s latest report does not paint a picture of gloom and doom, as the markets would suggest.
It currently estimates global growth was 3.1 per cent in 2015, and will be 3.4 per cent in 2016, and 3.6 per cent in 2017. This is more gradual than earlier, but it is still growth. It has, in fact, projected recovery, though slow, in the advanced markets of the US, Europe and Japan. For the emerging and developing economies it has predicted different paces of recovery. Even Brazil, Russia and some Middle East countries are expected to see growth pick up in the next two years. As expected, India would see the highest growth, at present 7.3 per cent, and at 7.5 per cent for the next two years. In the case of China it isn’t that there will be no growth, but it will be slower — 6.9 per cent in 2015, 6.3 per cent in 2016, and six per cent in 2017.
China does impact the global markets as it is the world’s second-largest economy and one the largest, if not the largest, buyers of commodities. It had grown in double digits for nearly a decade and is now cooling its overheated economy. The panic in some quarters is that China may have lost control over its economy as it has been experimenting with various solutions without much success.
Whilst India as China’s trading partner is impacted, the steep fall in India’s stock markets is due more to domestic factors. Players and financiers in Indian markets were in overbought positions and, having taken their stocks to 52-week highs and the markets to highs, are now unloading these stocks. Neither the government nor Sebi seem to show any concern even though the names in this powerful lobby are known to them. For investors this is an opportunity to buy for the long term good stocks, like the blue chips, because many of them are at 52-week lows. Interestingly, RBI governor Raghuram Rajan said during an interview that everyone is taking money off the table. FIIs take out money in a hurry, but then they come back. And in the case of oil, those in overbought positions could be selling. The focus should be on fundamentals. He said India has been helped by falling crude and commodity prices.
