Financial markets will use China’s recovery as a sentiment tracker, according to Nigel Green, founder and CEO of the financial advisor deVere, after European and Asian-Pacific markets, as well as U.S. futures fell in a stream of stark headlines over the weekend.
His comments followed Chen Yulu, a vice governor at the People’s Bank of China, who gave a press conference on Sunday noting that two ways the country is contributing to global financial recovery is by maintaining domestic financial markets’ stability and by being involved in international talks on macroeconomic policy collaboration.
“Since the World Health Organisation upped its rhetoric on Covid-19 due to the rapid spread, financial markets – including stocks, oil, government bonds and gold – have experienced wild bouts of volatility and major sell-offs,” said Green.
“Investors are now not only monitoring the habitual markers like the price of gold and oil and international fiscal and monetary policies, but they’re also tracking the global health policies and coronavirus-death tolls.”
The epicentre of the pandemic has shifted from China to Europe which has now registered more coronavirus cases and fatalities than China.
Almost immediately, the Chinese authorities launched intense lockdown measures to try and halt the outbreak. It appears to have been successful, with cases having fallen considerably, Green said.
“However, the adverse impact on the world’s second-largest economy – which drives in a large part – the global economy – has been significant.”
The deVere CEO added that, “investors around the world will now be looking at how China gets back on its feet economically. Did the extreme lockdown work? Were the public health facilities adequate? Will there be another outbreak as activity resumes? How will the authorities now kickstart the economy? How will these decisions and the success of them impact the rest of the world?
“I’m confident that financial markets will stage a relief rally when there is a definitive signal that the infection rate is dropping and that cases have peaked. Investors will come off the sidelines and prices will jump.”
The deVere CEO concluded that the next stage in China’s public health and economic recovery is critical.
“What takes place in the People’s Republic will be used by investors as a sentiment guide and a gauge for the rest of the world, particularly the U.S. and Europe where Covid-19 transmissions are yet to peak.”