Global markets shrug off China’s market turmoil

Kimberly Adams Jan 11, 2016
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Global markets shrug off China’s market turmoil

Kimberly Adams Jan 11, 2016
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It was another rough and tumble day in the Chinese stock markets, but, unlike last week, swings in the markets in Europe and the U.S. were muted.

Part of the reason the markets didn’t panic as much had to do with the investors themselves, according to Brad Barber, professor of finance at the University of California, Davis.

“I think the market volatility we see, both in this episode and in general, is a question of whether you see it coming,” said Barber, “and I think last week it was a bit of a surprise, and, in some ways, this week it’s the new normal.”

So investors are getting a bit more accustomed to China’s market swoons, and what they actually say about the Chinese economy.

“I think people are waking up to the fact that while the Chinese stock market is continuing its nosedive,” said Eswar Prasad of Cornell University, “it’s not as important to the Chinese economy itself as people might think.”

Global markets were also reassured by the Chinese government stepping in to strengthen the currency.

“If China lets its currency fall a lot, they can out-compete other countries … and that will hurt profits in other countries which will of course affect their stock markets,” said Joseph Gagnon, a fellow at the Peterson Institute for International Economics.

Gagnon said even though very few international investors are involved in the Chinese stock markets, the world still uses them as bellwethers for how well the Chinese government is managing the economy.

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