The world economy has been plunged into serious weaknesses of a financial crisis which has been characterized by the sinking stock prices, low inflation, and the bizarre sensation of undesirable interest rates. At the same time, the emerging markets are raising serious concerns about the economy being stalked by threats that central bank which comes in during such financial crisis may not hack.
According to the market strategies advisor for JP Morgan Funds, David Lebovitz, there is a lot of uncertainty because of the sluggish growth globally. In any case, Europe’s banks have also been caught up in the mix having been at the centre of the 2007-09 crisis that came about as a result of advancing too many loans to homeowners with shaky credit.
The current unfolding has caused uproar among investors who are considering shifting gears to safeguard their savings citing that there is a probability of experiencing losses. A simple case to worry anyone is that of china’s economy which is going through a sharp slowdown hitting oil and metal producers in other countries pretty hard. Russia, a significant energy exporter, has not been left behind either having slid into recession resulting to the plummeting of its currency.
The emerging markets, the likes of Brazil, South Africa and Turkey have not been spared either. There is too much money flowing out of them. Estimates indicate that $735 billion was pulled out in 2015 which apparently was the first year to experience net outflows since 1988.
And in response to the global recession, Central banks led by the U.S. Fed are now slashing interest rates which are an active encouragement to investors who are searching for higher returns from the emerging markets. However, chief economist at ADM Investor Services, Stephen Lewis, says that Fed should have instead raised the rates to normal levels. Otherwise, there could be cases of monetary policy paralysation.
But with the plunging stocks in the U.S. and Europe, co-CEO of Deutsche Bank, John Cryan, was quick to outline to the public that investors had pounded the bank with stock hence the bank’s finances were “rock-solid” and that there was no cause for alarm.