Aug 25, 2015 (LBO) – Sri Lanka’s new cabinet, which will be sworn in today, will face challenges with the uncertainty of global markets after China’s ‘black monday,’ economic policy legislator Harsha de Silva said.
“It is a very unusual evening as we watch global markets tumbling, starting off with China with Shanghai index falling eight and half percent, Japan stocks down five percent,” de Silva said.
“The market capitalization of world stock exchanges got over a 100 billion dollars wiped out just today,”
“What is happening to the stable economy? What happened to China? Why did the Shanghai index drop by such a huge amount? What is happening to the Yuan? Will there be competitive depreciation around the world? Will the US decrease interest rates and what will happen to us?”
“So this a challenging time to take a new government,”
“When the cabinet is sworn in we will have so many questions to be answered, and the answers are not going to be easy.”
The Colombo stock exchange also faced severe selling as investor’s off-loaded shares on profit taking as global growth concerns.
Most of Asian markets suffered yesterday (24) from major losses on fears of a China-led global economic slowdown and hundreds of billions wiped off world’s financial markets, as Chinese fear spread in Europe, Asia and the US.
That’s the biggest one-day percentage falls for major indices since 2011, Reuters reports.
De Silva said developing countries like Sri Lanka will face difficult issues due to this new situation in the international market.
“If the interest rates of the international market start to go up what will happen to the investments of hundreds of billions of dollars,that were supposed to come for emerging economies?” he asked.
“We were hoping to double the perpetual investment dollars that were to come to Sri Lanka.Now suddenly there is going to be a reversal and all the money will go for safe destinations,”
“So the next day or two is going to be very unusual, and as a matter of fact, we think this is the first kind of turbulence from the global financial crisis since 2007.”
However, he said that he does not believe that this market decline will lead to another meltdown.