Corona, made in China, is still counting and creating a pandemic effect in the world. China is renowned as the world’s fastest-growing major economy with growth rates averaging 10% over the past 30 years, according to the World Bank. In later 2017, the country’s economy was the second largest in the world by nominal gross domestic product (GDP) and the world’s largest by purchasing power parity (PPP) next to the United States. It is driven largely by its manufacturing sector that exports goods that are widely consumed around the world.
The hole in the pool!
Looks like China’s trade war with the United States set forth a roadblock for the country’s growth. The International Monetary Fund (IMF) has denounced the growth forecast of China with an annual rate of 6.2%. Because of the uncertainty of how restrictive the trade war will get to Chinese products, the IMF is strict. The Chinese government has taken measures to offset growing the U.S. tariffs by instituting a cascade of supportive policies.
As per the expert economists from many countries believe that China’s economy will begin to slow down as its population ages and wages rise to meet global standards. Apart from this, the new dearth of supply to and from China has crashed down China’s market to minus scale.
Corona turning out not only an epidemic but as a pandemic burst is a world threating and devastating disease to be aware of. The population in China was an advantage to the working sphere, as for the young and energetic with relatively low wages fuelled the manufacturing sector.
The loophole is that these changes take shape at the expense of the service sector and manufacturing unit. Which requires lesser labour over time as technology has replaced jobs.
The bottom line is we might have to switch from migrating from manufacturing to services as the big countries such as Europe and the USA did back then. This is one of the means to drive the GDP of the country. However, the balanced growth of such unit can raise 8 per cent of the employment. It includes wages and private consumption more quickly than unbalanced growth greater which is than eight per cent. From 2015 to 2016, the government has explicitly lined up to embrace the transition to services.
Interference of the Global Economy!
The difference in China’s exposure can cost a dime or nothing to different countries as an impact from China’s economic slowdown. Whereas in countries that are dependent on commodity exports, like Australia, Brazil, Canada, and Indonesia, the slowdown could have a negative impact. Especially, on their GDP growth as demand slows.
The inevitable fall in commodity prices could be beneficial, however, for other countries that consume the commodities, such as the United States and countries across Europe it is not that beneficial.
Either way, the slowdown will require some adjustment on the part of the global economy. Lest the country could have been one of the single largest contributors to global economic growth over the years. This analysis report arrives from the IMF, that China could have been contributing about 31 per cent on average from 2010 to 2013.
Repositioning the portfolios based on the phase of the global economy.
This strategy of acting according to the randomness may not serve the long-term growth but defends from the temporary fall of the country’s economy. To leverage this, international investors can find it uncomfortable to defend against the implication of a slowdown in China’s economy. If these investors are planning to do so by taking simple measures aimed at rebalancing their portfolio can help them account such changes for the better.
Reduce Commodity Exposure
The most profound effects of a slowdown in China’s economy would be reduced consumption of commodities, and as a result, lower commodity prices over the long-term. However, it’s worth noting that commodity futures trade based on expectations rather than reality, so the timing of these declines will depend on perception. It’s also possible that other countries will pick up the slack, particularly those in Southeast Asia.
Investors can mitigate the effects of a decline in any individual country by ensuring that their portfolio is properly diversified in countries around the world, including developed countries like the U.S. and regions like Europe, as well as in other emerging markets that could be positioned to take over manufacturing activity.
Hedge with Puts on Chinese ETFs
Investors can purchase long-term put options on Chinese ETFs or short-sell Chinese stocks in order to hedge their portfolios, profit from their declines, and offset any long Chinese positions in their portfolio. The downside is that these active strategies require a certain level of market timing that can be difficult to pull off, which makes them the least appealing of these options.
Proactiveness can help investors measure the potential for a sharp contraction in China. Like other economies, China could experience a boom-bust cycle that could damage its equity and bond markets. The real estate market has become a major concern in 2016 and 2017, but other asset bubbles could become equally oversized if the economy overheats and regulators aren’t able to rein in growth.
These are important trends that investors should monitor.