China at the central stage for global markets

date 29  December,  2022
time 2 mins read

Global markets have shown some resilience just before we enter into the New year 2023 where major equity markets have gained from the recent lows. The Fed rate hikes followed by surging inflation kept the market in check in the second half of the current year.  

At the current juncture, major economies now again coming under the scanner of the covid where China has become the epicenter of the same. China, the largest consumer of most commodities globally, was seeing unprecedented protests against the country’s strict COVID restrictions.

The Chinese government has removed the Zero Covid policy and removed major restrictions which have led to a powerful resurge of the covid infections all over the Chinese region. According to one report, more than 80 Chinese cities are battling high levels of infection, compared with 50 cities during the Shanghai shutdown which lasted 60 days. These cities generate half of China’s GDP and generate 90 percent of its exports.

A turbulent China is not good news for the global economy. It is one of the major producers of commodities, intermediary products, and many other useful goods at the cheapest prices. Any disaster event in this region will lead to supply chain disruptions which will again lead to a surge in inflation followed by slowing global growth.

On the domestic front as well, many Indian companies also depend on Chinese companies to get their raw materials and many other intermediary goods to make the finished products. India being a large importer of crude oil will benefit from softening oil prices but investors should also brace for supply chain constraints amid the Chinese crisis due to covid.

It is to be noted that the more the Chinese economy struggle with the covid crisis it will further deepen the global growth concerns. From the investment point of view, India will be the next best destination for the global giants but Chinese companies can’t be ruled out completely at a go.

From the financial market point of view, it is now clear that the corona fears will keep on rattling the streets now and then as we as investors have to deal with it on a day-to-day basis. So, it is to be noted that any correction due to corona news flow will be a good opportunity to add to the equity portfolios. The history in the last three years says that any correction due to uncertain covid fears is bought into and the investors have generated good returns as well.

Nifty is likely to remain volatile in the near term and has given a handsome decline in the last week. We will not rule out any more correction given the Chinese crisis but this turmoil is expected to be a brilliant opportunity for investors to add on to their existing investment portfolios. Also, we can add some precious metals like silver and gold to hedge the uncertainty through ETFs.