China’s devaluation woes in a Nutshell

This article is written on the 13th of August 2015 and as of date the chinese government has devalued its currency for the third day running.

This has sent markets spiralling downwards. The Straits Times Index has been hit terribly. The US market has turned south as well and the entire market is in chaos. My personal portfolio has also taken a huge hit with most of my positions in the red.

Am i worried? Yes. Partly so. I’m not in full distress mode but let me just tell you what this whole situation implies.

China’s devaluation of its currency is causing many people to speculate that the Chinese economy isn’t doing all too well. Its attempt at devaluation simply suggests a move to make its goods cheaper in the rest of the world. This has dangerous consequences though. Before i get into that let me share a little snippet of China’s economic situation at the moment.

‘China‚Äôs total debt, which includes government debt, corporate debt and household debt, reportedly, stood at US$28 trillion, as of last year. It is equivalent to nearly four times the total annual economic output of the country.’ Large economies holding too much debt can never be good news.

Let me get into the consequences and how china’s devalution of its currency will affect US as retail investors.

This is the first major consequence.

If you love to buy your goods in China then kudos to you. Imports from China would be a lot cheaper. However if you look at the flip side of things. American goods sold in China would suddenly become a whole lot more expensive. There was a program i watched on Channel News Asia which mentioned about how an iPhone would suddenly become a whole lot more expensive in China because of its devaluation. Not only Apple but many other corporations which sell their goods in china would be affected.

This could lead to a second more important consequence.

As a result of the devaluation any income made by US corporations in China would be worth a lot less. This ultimately would affect the company’s earnings. US companies which make a huge chunk of their revenues in China would be the worst affected. When earnings dry up, jobs dry up.

This could ultimately lead to an even more serious consequence.

People lose jobs, stock markets slide further and countries around the world start waging ‘currency wars’ to keep their own goods competitive. Other countries might legitimately feel the pressure to devalue their own currencies.

Well all this is very interesting and gives rise to many opportunities.

At a brief sharing i had today i shared with some of my friends how the time to be in the know. To actually understand investments is NOW!

Some of the best opportunities will arise as a result of volatility in the markets. The people who will reap the benefits are the ones who are ready when opportunity arises. Its as simple as that.

Are you one to be ready when opportunity comes in front of you??

I have been invited to share about this whole economic situation and what opportunities have arised as a result of the currency devaluation this week on Saturday.

If you’re interested to attend the talk do leave your details HERE and i will send you details of the talk.

To your investing success,
Resh

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