While investors are busy with President Trump and all the chaos in the White House, the European elections, Brexit, and the Federal Reserve's decision, another serious problem rises in China.
Two years after China alarmed a stock market crash and a declining currency, many investors forgot about it. At present, Chinese stocks have reached their highest levels since the crisis, outpacing other emerging market competitors shares.
Among the majority of investors, the view is that China is good. On the other hand, some investors started to worry about the Chinese economy and debt is the basis for these concerns. In order to keep its economy in good shape, the Chinese government has resorted to an increase in the already huge debt of the country. According to the Bank for International Settlements, this debt reached 257% of the country's GDP in 2016 from 152% in 2007. Investors do not worry so much about the volume of debt than the rate at which they grow.
Over the last few months, the government has tried to slow down this trend, but it has rocked the financial markets in China. The fear is that tighter credit could both slow growth and make it harder for these highly indebted firms to return.
It is very likely that we will see capital withdrawal from China until the government has taken an adequate solution to solve the problem.
Source: Bloomberg Pro Terminal
Jr Trader Petar Milanov
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