Thursday, August 27, 2015

China Impact

By now we all can see the Chinese economy is falling apart. Will that affect us? Yes, What happens in China will have a massive impact on economies around the world, which means most stocks will get hit. We have to remember China is not Greece.
The China has continued to build high-end real estate in order to show GDP growth, but very few people live in these so-called ghost cities. (Same can be said about India in few years, if we realized it on time and learn from China now.)  The Chinese government has also banned short selling, temporarily halted IPOs, pressured state-owned banks to make loans to struggling businesses, allowed pension funds to invest up to 30% of their net assets in stocks, and temporarily banned company shareholders with stakes of more than 5% from selling. If these aren't desperate measures, what is?

If the Chinese stock market crashes, it means that the investors do not believe in a bright future for China's economy.  As people see their portfolios shrink, they might start selling stocks.  That may trigger more selling.  Another thing the Chinese might sell is gold.  And if gold prices fall significantly, there is a good chance panic would come to India as well because the Indians traditionally are holding onto a lot of gold.

But there are other views too, which elaborates Indian economy much stronger to survive such external stock. And we all should believe that but just trade cautiously. Having said that there is no need to get panicked either, rather it can be seen great opportunity to invest in companies which we use and hear about everyday. These are companies will be there for long time.

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