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Global Stock Shock: Why and What’s Next
Aspire, Thought Leaders | 25 August 2015
By: Chen Xushuang
Articles (26) Profile

24th August is now known by the world as China’s “Black Monday”. The Shanghai composite index has dropped by 8.5 percent, wiping out all gains made this year. This very gloomy Monday has also sparked global losses, wiping hundreds of billions of dollars off world markets and sent global stocks plunging.

What are the reasons behind this and what to make of it? Dar Wong, Principal Consultant of APSRI and Investment Director of Dektos Investment Corp, offers his insights below.

CNY Devaluation; Strong Dollar

Dar Wong has stated two main reasons behind the global stock plummet. Firstly, it was China’s devaluation of the yuan, which drained out funds from Chinese stock markets. He said that this has subsequently triggered a fear that drove the fund flight out of equities and into Gold as the “safe haven”.

Secondly, he cited the reason of a strong US Dollar, which has been rising rapidly against ASEAN currencies due to a rate hike fear in September. Meanwhile, the backdrop of China’s slowing economic growth, as well as its debt-fuelled stock market boom, and the fact that ordinary Chinese (who might have little financial education) have been getting into stocks in droves, might have exacerbated the panic.

Investors’ Takeaway

Despite the severity of the crisis, Dar Wong expects recovery to follow very quickly from September to the end of the year for some blue chips and undervalued stocks. He advises retail traders to be selective in the equity market and also consider alternatives in precious metals and sovereign Government Bonds.

Bloomberg View writer Matt Levine also sees “silver linings” in the crisis, as one could see the stock market crash as “stocks going on sale”, and thus an opportunity to “buy stocks cheap”. He also suggested that investors could “stop worrying about quarterly capitalism”, as “the big swings represent changing views not about the next month but about the long-term future”.

As a Communications Studies graduate specialising in journalism, Xushuang is keen to observe and explore issues that readers want to know more about, and to deliver quality content through engaging writing.

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