Michael Heise, Head of Group Economic Research at Allianz SE
What is your take on the current situation on the markets?
The global financial markets have been reeling under the influence of developments in China. The drastic price correction on the Chinese stock markets and the changes made to the Chinese exchange rate regime have fueled concerns that the country’s economy is in the midst of a pronounced growth slump. Given the importance of China as a sales market and consumer of commodities, there are strong knock-on effects on other emerging markets, putting their currencies under pressure as well. So far the Chinese economy has only cooled down to around 7% growth over the past quarters: this certainly is not a recession and even the further loss of momentum will not drag the global economy into the abyss. The sentiment on markets has in my view been more negative than the reality of the economic slowdown.
What should investors expect?
The phase of uncertainty on the financial markets looks set to continue, volatility will remain substantial. But if further signs of an economic slump in China emerge, this could again put pressure on markets, but it will also convince economic policymakers to take further measures to stabilize the situation. They will do everything in their power to prevent a "hard landing". What is more, the fact that inflation rates are on the decline across the globe means that central banks in the industrialized nations can remain on an expansionary course. The Fed will be careful in raising interest rates. This will help stabilize the markets.
What would you advise investors to do at the moment?
In my opinion, the reaction of the financial markets is strongly exaggerated, especially here in Europe, where the real economic data has been improving of late. As a result, I expect that there will, in all likelihood, be a turnaround in sentiment on the stock markets as we saw yesterday. Further improvements could be decisions by Beijing to counteract the situation by implementing economic stimulus measures. Although volatility will remain to be high I'd actually say that the current situation offers good opportunities for re-entering the market for investors with a medium-term perspective. The DAX for example has lost about 20% since the peak in April.