25 Aug Global crash, made in China
10 Points one need to know about the mayhem
The Sensex record a crash of over 1,625 points to 25,742, which is at a one-year low level, leaving investors poorer by the tune of Rs 7 lakh crore (over $100 billion) while the rupee also closed at a minimum of two-year low at 66.65 a dollar. The ‘Black Monday‘ crash witnessed a mayhem in the market all across the world especially in the developing economies market. The ‘Black Monday’ crash was caused underlying fears of a deep and ever so lasting economic slowdown in the Chinese economy, which is also the second largest in the world, and it accounts for 15% of the total global GDP and it also accounts for half of all the global growth.
1. The rupee is copying trends in other developing market currencies. Most currencies have been on the fall since the China’s decision to devalue the yuan more than two weeks ago, it was an apparent attempt to help the Chinese exports. This move has triggered fears of same moves by other countries that may also prefer to lower the value of their currency, provided their exports are overtaken by cheaper Chinese goods in a world market which is very shaky
2. There was a 1000-point fall in the benchmark 30-share BSE Sensex on Monday which was caused by a widespread sell-off in Chinese bourses. The Shanghai share index tumbled to a five month low extending to 7.7%. Investors have interpreted it as a “danger-ahead” kind of a move .
3. The consistent drop in the Chinese equities could be signs of the world’s second largest economy is much more vulnerable. The end result is that the: foreign investors are moving their funds quickly out of China and other emerging markets such as India so as to cut out their losses.
4. A constantly moving up and down stock market could also interrupt the Indian government’s plans to sell shares and stocks in the state-owned companies. The government had listed to sell 5% of stake in oil marketing and major Indian Oil Corporation (IOC) for Monday, which was told to get the Indian Government about Rs 9,500 crore.
5. After a period of relative security, the rupee is now at 67 to a dollar, losing about Rs 3 to a dollar in about the 10 days. If you are an exporter, a weaker rupee would mean one’s earnings in terms of rupee will go up. But also slowdown in the European Union, India’s biggest export markets, may also force the orders to also dry out.
6. A weaker rupee also implies you end up paying more to buy dollars for your education fees. Likewise, if you were planning to go for an overseas vacation, you would need to set aside more money. A weaker rupee also means you end up paying more to buy dollars so as to pay for hotels, travel air tickets .
7. If the rupee continues to fall, one can expect the household items price to rise. For instance, imported items such as Kiwi Fruits, Apples, Imported liquor, cheese and even the cover price of some widely read foreign books may also increase because of the higher landed cost.
8. Also, depreciating rupee will also lead to making many other imported goods more expensive. So, expect computers, imported mobile phones and gold to become much more expensive. A falling rupee will also finish of the the gains from reducing crude oil prices, limiting the oil companies’ to cut the rates of petrol and diesel prices.
9. High interest rates could also help bring in the U.S. dollars, or probably aid in slowing down the reduction of dollars. This could to some extent help in reducing or securing the rupee’s slide. The other side to it is, however, would mean that loan rates for households and companies will be remaining more.
10. To increase the value of the rupee, India should look forward to bring in more dollars into local equity and debt markets of the country. For this, it should be engaging enough for the investors as they global funds chase land who give better and bigger returns. This could in turn make the RBI to keep interest rates high, despite low inflation, so as to maintain India as an investor friendly market that offers high returns.
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