Sponsored column: China's economic slowdown may have far-reaching consequences

The American markets, having risen strongly since May as other global stock markets faltered, finally gave up the charge in October and surrendered all of their 2018 gains, led in the main by a handful of overpriced technology stocks.

Carolyn Black of Myddleton Croft
Carolyn Black of Myddleton Croft

Whilst writing, few asset classes or regions have increased in value since the beginning of the year.

Previously, in similar circumstances, global investors would have looked to the US Federal Reserve (FED) to stabilise the ship, however

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it is unlikely any of the tools currently available to the FED will offer much more than a temporary ‘sticking plaster’ solution to the

current problem.

Moreover, one must ask whether it is in the FED’s mandate to prop up the stock market? Even delaying December’s expected interest rate hike

is unlikely to provide much more than a small sentiment boost as investors’ attention seems to be focussed a little farther away.

China, whose stock market is off 20 per cent since May, could well be the source of global concerns, with many companies citing China’s

economic slowdown as the reason for their falling revenue growth, most notably European car makers.

Factors such as declining global gross domestic product, increasing concerns surrounding international trade wars and emerging markets

buckling under high levels of foreign debt, have influences from both America and China at their core. Whilst there may not be much room to

manoeuvre where the highly rated, politically driven American economy is concerned, interest is likely to remain on the direction of China’s

faltering economy.

Some of the Chinese government’s recent strategies have undoubtedly boosted domestic demand and growth, for example, financing infrastructure spending and reducing the starting level that income tax is paid.

Whilst other initiatives, such as its programme of debt reduction and the curbing of the shadow banking sector, have almost certainly

hindered progress. If ongoing talks between Chinese and American leaders do not begin to ease trade disputes, China’s subsequent

retaliatory actions could result in additional hurdles for the global economy.

It would be remiss to lay all of the world’s woes at China’s door. Italy’s battles with the eurozone and the UK’s messy Brexit, for

example, do not directly involve China, but investors would be unwise to discount China’s next moves as it attempts to sure up its precarious position as a global powerhouse.