How Many Black Swan Events Will Hap­pen in 2017?

CAIFU - - 大势观点 Economic Outlook -

The year of 2016 wit­nessed two ma­jor black swan events, the United King­dom's with­drawal from the Euro­pean Union (Brexit) and Don­ald Trump’s get­ting elected US Pres­i­dent. It’s likely that more black swan events will hap­pen in 2017.

The above-men­tioned two ma­jor black swan events in 2016 were be­yond the ex­pec­ta­tion of many peo­ple, be­cause they never re­al­ized that the mass of pop­u­la­tion were so dis­sat­is­fied. It seems that peo­ple were dis­sat­is­fied with the sta­tus quo in 2016. Will the sit­u­a­tion im­prove in 2017? If pop­u­lar dis­con­tent is not re­duced to some ex­tent, there will no doubt be more black swan events ahead.

No one knew what Trump would do be­fore he got elected. How­ever, peo­ple's con­cerns weren’t al­le­vi­ated af­ter the mem­bers of Trump Cab­i­net were un­veiled. It is fea­si­ble to judge what Trump wants to do based on his Cab­i­net staff ap­point­ments. Given the fact that many of his nom­i­nated cab­i­net mem­bers have ex­pe­ri­ence serv­ing as high-rank­ing US mil­i­tary of­fi­cials in the Mid­dle East, and that his nom­i­nated Sec­re­tary of State is from the pe­tro­leum sec­tor, peo­ple can’t help pre­dict­ing that oil may be the com­mon con­cern in the fu­ture. Oil has been the No.1 com­mod­ity im­ported into China in terms of im­port vol­ume. A sharp drop in oil price will not only put Rus­sia at a dis­ad­van­tage, but may also trig­ger in­fla­tion.

Sino-us trade con­flicts seem in­evitable, but how far such con­flict will go re­mains un­known. In ad­di­tion to trade con­flict, the Sino-us re­la­tion­ship is un­likely to be calm in the fi­nan­cial, geopo­lit­i­cal and mil­i­tary fields. The US re­la­tion­ship with Europe and other re­gions are likely to be sim­i­lar. It will be for­tu­nate for the whole world if both China and the US can keep such con­flicts un­der con­trol.

In terms of fi­nance, many peo­ple spec­u­late on how much the RMB will de­pre­ci­ate in the end. It will be ac­cept­able if the RMB suc­ceeds in de­pre­ci­at­ing with­out caus­ing too much un­rest. When Trump ac­cuses China of steal­ing US jobs, we need to fig­ure out whether Trump re­ally ex­pects the USD to ap­pre­ci­ate a lot or the RMB to de­pre­ci­ate sig­nif­i­cantly?

Black swan events also hap­pened in China. Not long ago the bond risk of Sealand Se­cu­ri­ties was re­ported. This in­ci­dent has been smoothed over to a cer­tain ex­tent. How­ever this case is sim­ply the tip of the ice­berg, with many trou­bles re­main­ing to be ad­dressed. The stock mar­ket cri­sis of 2015 has ag­gra­vated China's fi­nan­cial risks. Com­pared with the stock mar­ket, which has al­ready weath­ered the storm, most of the risk in the bond mar­ket and hous­ing mar­ket still re­main un­solved.

Re­cently, China's stock mar­ket has also been in­flu­enced by the bond mar­ket. It re­mains to be seen whether the im­pact is al­ready over or will be­come even big­ger. If var­i­ous un­fa­vor­able fac­tors ex­ert their in­flu­ence on the Chi­nese stock mar­ket to­gether, it is likely to pro­vide a very good op­por­tu­nity for in­vest­ment. If there is no ma­jor ad­just­ment, time will be ex­changed for space, so that the tran­si­tion from bear mar­ket to bull mar­ket will take longer.

Since China needs to ad­dress the prob­lems ac­cu­mu­lated dur­ing its rapid eco­nomic de­vel­op­ment over the past three decades, we must not be sur­prised at its eco­nomic fluc­tu­a­tions. Just like the US which ex­pe­ri­enced se­ri­ous eco­nomic cri­sis at times dur­ing the course of its rise, all coun­tries ex­pe­ri­ence ups and downs in their eco­nomic de­vel­op­ment.

In terms of trade, with the United States tend­ing to trade pro­tec­tion­ism, China is ex­chang­ing roles with the western coun­tries. Through­out most of its his­tory over the past sev­eral thou­sand years, China was a self- suf­fi­cient man­u­fac­tur­ing coun­try, al­most ca­pa­ble of meet­ing all its de­mands by it­self, while the western coun­tries were al­ways the ad­vo­cate and ben­e­fi­ciary of free trade. It will be very in­ter­est­ing if the United States fur­ther dis­tances it­self from free trade while China goes on em­brac­ing free trade poli­cies.

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