The Chinese yuan has been depreciating for the last 45 days, and the impact on the global economy is obvious. Markets around the world are taking a beating and according to billionaire investor George Soros, this is just the beginning of the consequences the world faces because of China’s struggle to transition to a consumer and service economy.
Mr. Soros, the 30th richest person in the world, has been predicting a 2008 type meltdown, and the signs for that sort of event are taking shape. China is having a difficult time dealing with their lackluster manufacturing base as well as export business, and that is putting a strain on their gross domestic product growth. The Chinese stock market just experienced a major sell-off. The Chinese government had to stop trading twice in January so the market wouldn’t collapse.
Those issues sent a bolt of fear through the investment community. More than $2 trillion in equity was wiped out of markets around the world in the first three weeks of 2016. According to Bloomberg.com, Soros believes China will continue to drag the world’s economy down, and many investors are pulling out of the market. China is trying to sure up their currency by controlling it, and that is putting additional strain on the exchange market.
Mr. Soros says China is the main culprit in this new financial meltdown, but there are other issues that are giving his prediction some validity. The European Union is on the verge of a collapse thanks to the migration crisis. Soros told a CNBC.com that Europe couldn’t handle the amount of migrants that are flooding into several countries.
The open border policy is a main part of the EU’s policy and it is in jeopardy because several countries have closed their borders to prevent migrants from entering. Other countries have refused to allow migrants to stay once they enter. German chancellor Angela Merkel is trying to find a solution so the EU can continue to be effective. Merkel is the leader of the EU.
Soros also mentions other issues like the drop in crude oil prices, the Greek debacle and currency devaluations as other factors that will contribute to a 2016 meltdown. A number of investors have moved money into gold and silver while others are investing in bonds and other securities to protect themselves.
The New York Stock market is off to the worse start in its history in 2016, and it seems that fact is another sign that the Soros prediction will become reality. But there are investors that don’t believe that Soros is right. Some investors think 2016 will be a good investment year in spite of a shaky financial start and the issues that are looming over China’s economic transition.