It is speculated that the correction in China’s stock markets is coming from a more significant reaction to the country’s downturn. With the risk of monetary devaluation, Brazil and other commodity exporters would directly suffer the effect of prices, Ricardo Tosto explains.
The primary concern with this thump is the interference in world economic activities, which can lead to reduced corporate profits and possible bankruptcies. Global strategist Thierry Wizman says that even with measures to encourage liquidity, it was not possible to achieve the expected economic growth. For strategist Marcelo Ribeiro, much of the monetary stimulus provided by the government for production was used for speculation in stock exchanges, generating for many companies more profits from the actions than from the operations themselves.
According to the specialist in banking law and capital markets, Flávio Maldonado, despite this high price correction in Chinese markets, it is challenging to determine the existence and real risks of a bubble burst. Wizman states that even considering the country’s restriction on the participation of foreign investors in the equity markets, it is assumed that the current movement of the Chinese market may impact other regions, affecting economic growth. The annual comparison shows a real decline in Chinese exports, giving room to the competitiveness of European products. However, appreciation of the US dollar allowed the rise of the yuan, due to the linkage of both currencies.
In Ribeiro’s opinion, the reduction in exports is a strong incentive for currency devaluation, making possible a major crisis in the commodities sector. With the reduction of the purchasing power of the Chinese, the exports of the inputs would be impaired. Some executives and experts say that Brazil would directly suffer the impacts of the bubble burst due to the high commodity market exported by the country. According to Ribeiro, Brazil is already feeling the effect of the fall in the prices of some essential commodities. Ricardo Tosto complements that data indicate that since mid-June, the stock markets have dropped approximately 30%. Compared to the same period in 2014, the exchanges are above the levels presented, and with companies participating in the stock market representing only a third of the Chinese GDP. That is, even in every crisis, the thump of the stock markets would hardly affect domestic consumption, says Ricardo Tosto.
One reason for the current correction is also related to the new rules imposed by some brokerage firms, forcing many shareholders to sell their shares to meet the established requirements. In an attempt to ease the situation, China’s major brokerage firms and the central bank issued a 120 billion share purchase package and set a goal of raising the Shanghai Composite Index to 4,500 points.
Ricardo Tosto affirms that the postponement of public offers and the suspensions of negotiations has also been part of this current scenario. Most of the interruptions occurred in Shenzhen, mainly through small caps. The share of the stock market of small business investors accounts for about 85% in the country. That is, these stock-market stallions directly influence the increase in market volatility. This is the panorama of the Chinese crisis according to Ricardo Tosto.
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