China's fast deflation poses risks for investors globally

China, the world’s second-largest economy, is facing significant economic headwinds as consumer prices experience the fastest decline in 15 years which could impact investors around the world.

This is the stark warning from Nigel Green, the CEO of devere Group, one of the world’s largest independent financial advisory and asset management organisations.

It comes as the consumer price index fell 0.8% year-onyear in January, according to official statistics released on Thursday, the fourth consecutive month of declines and the biggest contraction since 2009.

In a press statement, Green said, “The latest data suggests that deflation could be becoming entrenched in the world’s second largest economy and that raises red flags for investors globally.

“The impact can be expected to reverberate across various sectors, prompting a re-evaluation of investment strategies.”

He continued, “Prolonged deflation in China poses a threat to its manufacturing and export sectors, key drivers of the nation’s economic growth, and sectors often favoured by international investors.

“The deflationary trend in China could also weigh heavily on commodities and industries dependent on natural resources. A slowdown in Chinese demand for raw materials may impact global commodity prices, affecting investors in sectors such as mining, energy, and agriculture. Companies relying on exports to China for their commodities may experience decreased sales, impacting global investors with exposure to these markets.

“In addition, those with stakes in Chinese tech companies and global technology funds could see diminished returns as these sectors face the possibility of reduced funding and a more challenging business environment.

“Falling prices and reduced confidence may also lead to decreased demand for consumer goods, retail and housing and commercial properties as markets adjust to changing economic conditions.”

In an article this week for Asia Times, Nigel Green writes that policies from Beijing will be crucial in pulling China out of the current situation.

The cumulative effect of three years of economic downturn, erasing a staggering $7tn of value, “demands a departure from the smaller measures,” he notes.