George Soros, a billionaire investor says it’s like 2008 all over again. At an economic forum in Sir Lanka, he warned investors to be cautious as financial markets are facing a major crisis.
According to Bloomberg, Soros claimed that one of the reasons is China. The country stock market has declined in recent days to the point where trading halts were implemented.
Chinese yuan’s devaluation and slowing economic growth are major issues, and Soros believes that China needs to make major adjustments. Meanwhile, China’s problems are spilling into the rest of the world.
Slowdown in China’s huge consumer market is likely to affect exporters of manufactured goods (such as Germany), luxury goods producers (Italy, France), as well as numerous nations relying on commodity exports, and then their trading partners.
At present, China is in a long-term shift from manufacturing and investing to services and consumption. And that adjustment may not be easy.
China’s Communist Party has made a pledge to increase yuan’s convertibility in five years and dismantle capital controls. That may not be bad per se, but adds to the uncertainty over the future of the world’s second economy, and soon-to-be number one.
So far this year, equity investors around the world have lost around $2.5 trillion. And the markets haven’t come down yet. The volatility index (VIX) has risen 13% in recent days.
This has been picked up by the financial media and the investors are running scared. Yet, some advisors claim this may be a good time to pick up some shares.
George Soros had issued similar warnings before. In 2011, we warned of a major crisis coming from Greek default. That crisis has been postponed but not resolved. The Europeans are lending money to Greece as if the issues in Greece have been resolved.
They haven’t. If problems in China, Europe, and the Middle East come to the forefront, then we have a receipt for a perfect disaster.
What Soros says is closely watched by many since his track record is astounding. His hedge funds have averaged 20% return from 1969 to 2011. This performance is only slightly behind another great investor, Warren Buffet.
Another difference between the two is that Soros is more of a speculator type. Nevertheless, the man knows financial markets inside out as his $27-billion-dollar fortune made in the markets testifies.
As the financial turmoil unravels, many investors will surely be watching what Soros and other famous investors have to say.