George Soros says it is 2008 all over again: Is he right?

George Soros says it is 2008 all over again: Is he right?

Billionaire investor George Soros says the current state of global markets reminded him of the “crisis we had in 2008”. Other analysts are less pessimistic.

SINGAPORE: As investors around the world scurried for the exit amid renewed turmoil in China’s stock market, American financier George Soros has warned of an impending financial market crisis.

Speaking at an investment forum in Sri Lanka on Thursday (Jan 7), the billionaire investor said China's stumbling economy and devaluation of its currency were undermining global financial stability.

"Unfortunately China has a major adjustment problem and it has a lot of choices and it can actually transfer to the rest of the world its own problems by devaluing its currency - and that is what China is doing," Mr Soros said of the world’s number-two economy.

In addition, China, whose economic growth slowed to a six-year low in the third quarter of 2015, is struggling to find a new growth model which “amounts to a crisis”, the Hungarian-born magnate noted.

A return to positive interest rates will be a challenge for the developing world and the current environment reminded him of the “crisis we had in 2008,” he added.

“The comments from George Soros that we could be seeing a re-run of 2008 is a concern I share,” Chris Weston, chief market strategist at spread betting firm IG, said in a note on Friday. “While I do not necessarily think a long protracted bear market in developed market equities starts now, there is absolutely the potential for a deep move lower in 2016 or early 2017.”


Other analysts Channel NewsAsia spoke to say the state of global markets is less dire.

“I think anything is possible, but I’m not sure I would call for a 2008 crash at this point,” Tony Nash, chief economist at Complete Intelligence in Singapore, said in an email interview. “China is in an industrial recession and the Federal Reserve’s tightening cycle is likely to cause a crisis in one or two of the unhealthier emerging markets, but I’m not convinced it is as dramatic as Soros is claiming.”

Mr Nash noted that China still has approximately US$3 trillion in foreign exchange reserves, even as recent data showed the reserves posting their biggest annual drop in 2015, and that gives Beijing “a lot of dry powder to fix problems when they need it”. Central bank data released on Thursday (Jan 7) showed that the country’s hoard of foreign-exchange reserves fell US$512.66 billion to $3.33 trillion last year.

When it comes to Mr Soros’s view on how a weaker Chinese yuan was inflicting deflationary pressures, the Singapore-based analyst said the recent devaluation of the yuan is “relatively minor” when compared to Japan’s 35 per cent devaluation from 2012 to 2014.

Meanwhile, analysts also believe there are major differences between the state of global markets today and 2008. Back then, the global financial crisis peaked as a build-up of bad mortgage loans in the US caused several large banks to go under.

“In 2008, the Fed and US Treasury saved Bear Stearns, but later on let Lehman Brothers fail. This sent a crisis of confidence throughout the system and led to a credit market lockup,” John Petrides, manager director and portfolio manager at Point View Wealth Management, said. “Today, the Fed and every other central bank stands ready to make sure that does not happen again.”

While a slower-growing China could have major implications for countries dependent on Chinese demand, as well as economies who took on excess debt on the back of China’s high-speed growth over the past decade, Mr Petrides believes that policymakers around the world are now “armed and ready to handle a crisis by either buying bonds, providing stimulus, or injecting capital into banks if need be”.

In addition, measures such as the Troubled Asset Relief Program (TARP) are now in place to prevent the onset of another crisis, said the New Jersey-based analyst. “Volatility does not in and of itself equal a crisis."

In fact, heightened volatility could translate into potential investment opportunities, according to investment guru and emerging market expert Mark Mobius.

“We think the type of market volatility we have seen will likely continue this year, and not only in China. Volatility is increasing in many markets and it’s something investors will likely need to learn to live with,” Mr Mobius, who is the chairman of the emerging markets group at Franklin Templeton Investments, wrote in a blog post on Thursday.

“We view periods of heightened volatility with the lens of potential investment opportunities—allowing us to pick up shares we feel have been unduly punished.”

Source: CNA/sk