Have the recent falls in the Chinese stock market and currency been caused by the US tariffs of $34 billion and the potential trade war? The stock market and currency falls may look as though they are correlated but there may not be a direct link.
Shaken retail investors have caused the Shanghai Shenzhen composite to fall in to bear territory. Slowing economic activity had already dampened the expectations of investors before the prospect of the trade war had been raised,
A clampdown on speculative loans by Chinese authorities has put the brakes on the economy, with the dispute with the US acting as a 'double whammy' for the Chinese market.
The reverse is now happening as the Chinese authorities are raising the personal income tax threshold to RMB60,000 from RMB42,000 generating RMB125 billion in potential consumption, boosting GDP by 15 basis points and benefiting over 80% or 340 million people. An increase in infrastructure spending has also been mooted.
The currency however, is more sensitive to trade concerns. The renminbi would be negatively affected by the lower exports caused by a trade war. It has been suggested that the lower value of the RMB could be intentional on the part of China, however, this could lead to capital outflows that could exacerbate the problem rather than being advantageous for China.
Policy will likely continue to cushion the domestic economy of China in anticipation of further headwinds courtesy of the US.
Your financial adviser can help to make sure you are sufficiently diversified and in the right investments that will help you to achieve your long term goals.
The value of investments and income from them may go down as well as up and you may not get back the original amount invested.
Information is based on our current understanding of taxation legislation and regulations which is subject to change.
Past performance is not a reliable indicator of future performance.
Scratch beneath the surface of China’s recent sell-off