Recovery welcome but crisis not over
CRISIS over? I don’t think so.
The $35 billion or so kickback in the value of our shares yesterday was both welcome and instructive and, at its simplest, a living example of how markets work. They, what’s that word? “Fluctuate.”
Yesterday’s impressively sustained surge did claw back around one-third of the $105 billion or so that had been wiped off values over the previous three days of increasingly nervous trading.
What was interesting yesterday was the divergence between the developed world markets, with the exception of Tokyo and China’s Shanghai market. Those two kept going down, Shanghai’s by another 7 per cent on top of Monday’s 8.5 per cent.
That told us the bursting of the China share market bubble was not driving our falls.
But it never was; the fall in the China market was really only a “wake-up call” to the real driver, sudden, serious concern that we might face a significant slowing of the great China economic growth story and it’s that which matters big time.
It’s clearly the single biggest (external) worry directly for our economy and for a range of companies, from BHP Billiton and Rio Tinto (and Fortescue), down through those companies that have poured tens of billions of dollars into very expensive gas projects and so on.
But it’s a worry, also, for the world economy. One of the drivers of what has occurred over the past few weeks in global capital markets is a seemingly belated realisation that China actually matters bigtime for the whole world. Not its casino stock market, but the way, for example, the strength or weakness of the Chinese economy is now the global price-setter from the demand side of the oil price, against Saudi Arabia and US shale producers price-setting from the supply side.