Thoughts on market falls.

Well may you live in interesting times as the old Chinese saying goes which I guess is appropriate given that people are now calling this the Great Fall of China. Indeed it is falls in the Chinese stock market which seems to have started this panic, although that had been going on for a while as the Chinese market is unwinding from a debt driven speculative rally.
More significant for Global economies and markets is the suspicion that China is slowing and perhaps not even growing as fast as they have suggested as no one seem to trust their economic data. Talking of which I read an interesting blog called Beijing Blunders: Bull in a China Shop which looked at this and relative valuations by Professor Aswath Damodaran.

The problem has been exacerbated by the fact that China and emerging markets now make up a much larger share of global activity. So whereas in the past slow downs or a crisis in the Far East could be easily managed the chances are now that it will have a much greater impact on the global economy and hence markets. Presumably the Chinese will do their utmost to keep control and keep growth going, but I guess the concern could be that their whole building boom etc. could still end in a bust in the same way they have lost control of their stock market.

As for the UK market, the FTSE 100 crashed through the 6200 support level and closed below 6000 after a couple of terible days and after a run of 10 down days which in itself is a pretty rare event. Thus with the worst of the panic out the way in the short term and some signs of stability in the Far East this morning it looks like the FTSE might be able to sustain a rally today, but it will be interesting to see how long this lasts and if 6200 and 6500 now act as resistance on the upside.

Longer term however, apart from the oil majors, miners and companies which serve them then most UK companies should not be too badly hit by a slow down in China unless they are exporting a lot of product going into that region. Indeed for a lot of consumer facing businesses in the UK for example, things should still be fine as the fall in energy prices and likely further delay in interest rate rise should continue to bolster real incomes.

So food for thought there when rummaging through the wreckage from this recent savage sell off but probably best to let the dust settle rather than rushing in just yet. If it helps I have updated the Scores to reflect last nights closing prices, although the fundamentals have not changed just the prices and ratings!

Finally if all these market shenanigans are getting you down here's a poster and website about Happier Living - enjoy!