Despite the strong performance of stock markets this year, unease has been rising over the potential impact of a sustained slowdown in the world's second-largest economy. On Thursday, David Roche, president and international strategist of Independent Strategy, told CNBC's "Squawk Box Europe" that global stock markets were not factoring in a continuing decrease in the importance of manufacturing to the growth of emerging economies. He argued that a large downturn in the markets is probable, when all the concurrent geopolitics and macroeconomy risks are taken into consideration.
Veteran investor David Roche believes that China's economic model is not going to rebound from its current decline, a situation which is anticipated to have major repercussions for global markets. This follows a remarkable rally in stock markets this year, and Beijing has acknowledged a need to bolster its fiscal policy. In recent decades, China's economic growth has been remarkable and has surpassed that of many developed countries, overtaking Japan in becoming the second largest economy. However, economists have observed that the traditional pillars of Chinese economic expansion, such as property and manufacturing, are making diminishing contributions to growth, causing concerns over a prolonged slowdown in the country. The Chinese Communist Party has set a modest goal of 5% GDP growth for 2023. Some economists think that this target may not be achievable. Roche indicated that global markets were not taking into account the diminished role of manufacturing in emerging economies, which would lead to frustration among populations and increased geopolitical issues. He commented that the Chinese model is "washed up on the beach" and will not revive. The Chinese Embassy in London did not immediately respond to a request for comment.
China on Tuesday suspended the release of data on youth unemployment, which has lately risen to unparalleled levels, as July's economic data demonstrated a broad deceleration intensifying the nation's property market plunge. Roche suggested that China's shifting demographics indicate that there is no longer enough young people to back up a total refurbishment of its real estate market - which is commonly evaluated to power anywhere between 20% and 30% of the nation's GDP - and that is the crucial issue.: This article is intended for informational purposes only.
Roche warned that the many crises in developing countries such as Latin America, Russia, Niger, and the Sahel region in Africa had yet to be factored into the market, which could lead to profit margins being squeezed and a "very big" downward correction. He suggested that investors should take advantage of current low prices and accumulate U.S. Treasurys and other safe haven assets that offer yields. According to Roche, it is now possible to get paid to hold cash or bonds, which was not the case during the Great Moderation years.
Disclaimer: This article is intended for informational purposes only.
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