Looking back at the Chinese crisis that took place a few days ago, where the world markets suffered a crisis that made most analyst sweat, one can’t help but to identify a number of probable causes that might have brought about the crisis, and among them we can find:
1. The large debt that most important Chinese banks had contracted.
2. the excessive amount of investments due to Carry Trade but also to Chinese loans and an excessive amount of confidence in the Chinese economic miracle.
3. Speculation in the Chinese Real Estate market. .
4. The poor performance of the Real Estate market in the United State.
5. Other signs of weakness coming from the American economy among which we can find the slow growth of the manufacturing industry.
The Chinese government is trying lately to regulate the economic rate of expansion by controlling the value of loans from their banks and also by raising interest rates. On the other hand Japan is bringing up their interest rates making the Carry Trade business less appealing. In the USA recently the demand for durable goods, such as washing machines tools and computers had declined, contracting in January as much as 8%, this could be interpreted as part of the decelerating process of an economy that grew continuously for 8 years and that is going to enter a slow growth period.
We should be aware that mean while foreign economies keep lending large amounts of cash to America, subsidizing its economy, the world economy most probably will continue to have a healthy balance.
Among the future factors that could affect world markets stability we can identify Hedge Funds. Investments in Hedge Funds can be measured in trillions of dollars and speculation in this area can bring about chaos, affecting the growth of many top and emergent world economies.
The Chinese problem could be sum up by the fact that Chinese Bank’s loan restrictions and the Japanese raise of interest rates, which affected Carry Trade, brought about a lack of liquidity in the stock markets impacting negatively in the value of stocks which in turn spur sales. The bad news from the U.S. accelerated panic among stock holders.