First came the hand-wringing over unsustainable stock valuations. Then it was fears of an emerging-market meltdown. Now Italy and the euro are in the crosshairs.
As the world ponders whether this year is when financial markets finally buckle after a nearly decade-long boom, there is no shortage of potential crises to keep traders awake at night. The year is less than halfway over and pundits have already evoked the dotcom bubble, the emerging-market chaos of 1997 and 1998, and the euro area debt scare of 2012.
This year’s gyrations are less extreme than those of past crises by most measures, but they have nonetheless jarred investors who have grown used to the central bank-induced state of calm that descended over markets in the past few years.
The question now is whether to buy the dip — a strategy that paid handsomely over the past decade — or to cash in on one of the biggest-ever bull runs for risky assets.
“We’re getting these mini crisis reruns that are really sapping sentiment,” said Patrik Schowitz, a global multi-asset strategist in Hong Kong at JPMorgan Asset Management, which oversees US$1.7 trillion. “Though it’s clearly not the same magnitude, it’s just one thing after another and people barely have time to digest things. A period of calm is what we need to let the market regain its footing.”
The backdrop to this year’s turbulence is the US Federal Reserve’s move to increase interest rates from rock-bottom levels that have prevailed since the 2008 global financial crisis. That is putting upward pressure on US Department of the Treasury yields and prompting investors to reassess valuations across a range of asset classes.
While this week’s turmoil in Italy has raised questions about how aggressively the Fed is to tighten policy, investors still see a hike in the middle of next month as a virtual certainty.
Nowhere was the valuation scare more evident earlier this year than in blue-chip technology stocks, which in February endured their first 10 percent sell-off in two years. While the rout wiped out US$1 trillion of market value at one point, it paled in comparison to the 82 percent slump in global tech shares after the dotcom bubble burst in 2000.
So far, the same has been true for this year’s panics over emerging markets and European politics.
About 20 years ago, the MSCI Emerging Markets Index lost more than half of its value as east Asia teetered on the brink of financial collapse, raising fears of a systemic economic meltdown. Turmoil in Turkey, Argentina and Indonesia this year has yet to spark anything close to the same level of contagion.
While political chaos in Italy has also punished markets in Portugal, Spain and Greece this week, bond yields in those nations are still far off 2012 levels.
It helps that China and the US banking systems are still widely viewed as sources of stability, even as politicians in the two nations spar over trade. Growth in Asia’s largest economy has been steady over the past few quarters and few expect Beijing to devalue its currency — a move that roiled global markets in 2015.
While dark clouds are forming over Italy’s banking sector and Deutsche Bank AG, the US’ financial heavyweights are making money hand over fist and have bigger capital cushions to whether downturns than they did in 2008.
That has not stopped bears, including billionaire investor George Soros, from warning of a calamity in the offing.
Soros on Tuesday said that a surging US dollar and capital flight from emerging markets might lead to another “major” financial crisis, adding that the EU faces an imminent existential threat.
Still, he has been calling for a global crisis as far back as 2011, and markets have mostly marched higher. Anyone who bought an S&P 500 Index fund after he warned of a 2008-like environment in January 2016 would be sitting on a gain of about 35 percent.
Given the uncertainty surrounding Italy and the removal of central bank stimulus, it is sensible for investors to pare their exposure and watch how events play out, said Hao Hong (洪灝), chief strategist at Bocom International Holdings Co in Hong Kong.
On the question of whether another big crisis is imminent, Hong said it is too early to tell.
“In this kind of environment, my advice is to take less risk,” he said.
Chinese Nationalist Party (KMT) caucus whip Fu Kun-chi (傅?萁) has caused havoc with his attempts to overturn the democratic and constitutional order in the legislature. If we look at this devolution from the context of a transition to democracy from authoritarianism in a culturally Chinese sense — that of zhonghua (中華) — then we are playing witness to a servile spirit from a millennia-old form of totalitarianism that is intent on damaging the nation’s hard-won democracy. This servile spirit is ingrained in Chinese culture. About a century ago, Chinese satirist and author Lu Xun (魯迅) saw through the servile nature of
Monday was the 37th anniversary of former president Chiang Ching-kuo’s (蔣經國) death. Chiang — a son of former president Chiang Kai-shek (蔣介石), who had implemented party-state rule and martial law in Taiwan — has a complicated legacy. Whether one looks at his time in power in a positive or negative light depends very much on who they are, and what their relationship with the Chinese Nationalist Party (KMT) is. Although toward the end of his life Chiang Ching-kuo lifted martial law and steered Taiwan onto the path of democratization, these changes were forced upon him by internal and external pressures,
In their New York Times bestseller How Democracies Die, Harvard political scientists Steven Levitsky and Daniel Ziblatt said that democracies today “may die at the hands not of generals but of elected leaders. Many government efforts to subvert democracy are ‘legal,’ in the sense that they are approved by the legislature or accepted by the courts. They may even be portrayed as efforts to improve democracy — making the judiciary more efficient, combating corruption, or cleaning up the electoral process.” Moreover, the two authors observe that those who denounce such legal threats to democracy are often “dismissed as exaggerating or
The Chinese Nationalist Party (KMT) caucus in the Legislative Yuan has made an internal decision to freeze NT$1.8 billion (US$54.7 million) of the indigenous submarine project’s NT$2 billion budget. This means that up to 90 percent of the budget cannot be utilized. It would only be accessible if the legislature agrees to lift the freeze sometime in the future. However, for Taiwan to construct its own submarines, it must rely on foreign support for several key pieces of equipment and technology. These foreign supporters would also be forced to endure significant pressure, infiltration and influence from Beijing. In other words,
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