US markets rally, appears to shake off China worries


Aug 27, 2015 (LBO) – US markets rallied on Wednesday appearing to shake off fears about China, but all eyes will be once again on the Shanghai Composite Index on Thursday.

The S&P 500 recovered 3.9 percent and NASDAQ surged 4.2 percent after the Chinese market closed down 1.3 percent on Wednesday. Europe, however, bucked the trend with FTSE closing down 1.7 percent.

Violent swings on the Chinese market grabbed international attention because the Chinese economy is signifcant on the world stage. The country accounted for 38 percent of global economic growth last year, up from 23 percent in 2010, according to Morgan Stanley.

The Asian nation is the largest consumer of energy and metals, and the stock market is the second-biggest after the U.S. The yuan ranks third behind the dollar and euro in terms of trade finance, according to the IMF.

Yet, analysts say the market has not shown a signficant correlation with world markets in the past. 80 percent of investors are novice individuals who were riding a wave of enthusiasm akin to a casino which propelled valuations to unrealistic heights.

This week the German government said it was sticking to its forecast of 1.8 percent growth for Europe’s biggest economy. IDC cut its forecast for global smartphone sales to 10.4 percent, down from previous forecast of 11.3 percent for 2015, due to a slowdown in China.

Citibank expects China’s economy to grow by 6.3 percent in 2016, down from 6.7 percent seen previously. For 2017, growth is forecast to pick up to 6.5 percent, although this is below the 7.1 percent previously forecast by the bank.