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China - Global Economic Meltdown or U.S. Investment Opportunity?

January 25, 2016
1 September 2015 - 15:42, by lin

China is at the forefront of economic discussions across the globe. Every market update about the global economy is increasingly pessimistic over the apparent economic downturn that China is experiencing. The media would lead you to believe that the U.S. economy is in a sense shackled to the Chinese economy. However if you look at the numbers, the U.S’ link to China is fairly minimal. China is more dependent upon the US to continue buying Chinese exports in order to keep their struggling economy going. The Chinese have gone so far as to lower the value of the Yuan to try to encourage foreign investment in Chinese goods. While this process has worked as a stop gap; it is only a temporary fix.

China’s Economy.

The Chinese are dependent upon investment from the United States. The Chinese do not create, they copy. The Chinese have developed an unparalleled manufacturing structure paired with a low wage work force that has allowed them to become the global hub for most manufacturing needs. However, while it may not be economically feasible to compete with China in terms of shear manufacturing capability, the U.S. is dominating in almost every other area. Innovation is driven in the U.S. and other key hotspots around the globe, but not in the world’s most populous country. China’s greatest strength is also its greatest weakness, population growth. At nearly 1.3 billion, China’s population is roughly four times the size of the U.S. Yet, their quality of life is abysmal when compared to the average American. A large percentage of their population lives below the poverty line, coupled with pollution issues, and limited job/career prospects.

Stock Market Fire Drill.

When it comes to the market, whom do you believe? The Bears, which are screaming the sky is falling at the top of their lungs while trying to quietly shore up their “shorted position”, or the Bulls which are focusing on investing in American based companies while also helping to develop the U.S’ small cap market. More often than not, the market is impacted by propaganda then a logical circumstance. If the Bears are able to get the market to play along, they are not only vindicated for being wrong but they are able to secure a substantial profit. It is important not to get caught up in the hysteria surrounding the global economy and China. The Chinese economy is starting to cool off, but it is important to educate novice investors of the opportunity available at hand. The uncertainty in the Eurozone with Greece getting yet another bailout, and the perceived economic machine better known as the Peoples’ Republic of China starting to run out of gas, will lead both foreign and domestic investors back to the U.S. Small Cap Market. Investors will be looking to recoup their losses from the uncertainness of what is going to happen with Eurozone and China in particular.

An Objective Opinion.

Edward Panos, one of the managing members at “Brideges360”, was able to offer some candid insight in regards to China and the overall state of the global economy at present. Mr. Panos went on to say, “I disagree with the Fed’s choice to not raise interest rates. We should have raised the interest rate by at least a quarter of a percentage point. This would have fueled additional economic growth into the small cap markets bringing confidence back to U.S. stock indexes. Everyone is essentially waiting for the other shoe to drop. This is pretty clear when you see the VIX indicator at one point moved up $8 dollars in just a half day of trading. The media keeps stoking the flames with inaccurate information. Continued economic development and investment in the U.S. small cap sector will help bring calm to the marketplace. We need the Fed to invest in America. Raising interest rates will signal to investors that the Fed is standing behind the U.S. economy, and believes it is strong enough to warrant raising interest rates”. Mr. Panos closed by saying, “After months of economic international failures, the U.S. economy remains strong. Unfortunately, all markets can be susceptible to irrational selling or panic selling, but U.S’ small cap market is posed to absorb that volatility. The U.S. economy is resilient. Once we get past these next few months of panic from the novice investors we should see a return to normalcy”.