Worries over China.

21st August 2015

Ian Copelin, Investment Director, my wealth comments “Worries over China, the world’s second largest economy, was again the catalyst for lower equity markets yesterday.  Global markets have been volatile since last week when China surprised markets by devaluing its currency, the yuan, which is pegged to the US dollar.

China’s devaluation has put pressure on several other currencies pegged to the US dollar, including Vietnam (which devalued its currency earlier this week) and Kazakhstan (which yesterday saw its currency slide over 30% after allowing its currency to free-float).

Also minutes from the Federal Reserves’ FOMC (Federal Open Market Committee) meeting from July released on Tuesday night failed to give the market the certainty it needs over the timing of the first interest rate rise in nearly a decade. The minutes showed the FOMC is still concerned about low inflation – and since the July meeting oil has fallen over 10%, which is deflationary, and will clearly be on the agenda at the September FOMC meeting.

While China’s devaluation on the yuan and the uncertainty over US interest rates acts as a headwind to performance, the fail in oil prices coupled with accommodative monetary policies will act as a tailwind for global growth and are significant long term positives for equity markets.”