28 Apr 2022
China: Supply, supply, supply
- Posted by Dejan Pekic BCom DipFP CFP GAICD, Senior Financial Planner
The past 5 months have been bad for financial asset prices.
The Dow Jones Industrial Average and the S&P500 have both corrected (meaning a 10% plus fall from recent peak) while the NASDAQ index has crashed with a fall beyond 20% from recent peak.
Why had this happened? Because the United States Federal Reserve has started increasing short term interest rates.
Why? Because inflation in the United States has jumped to 40 year highs.
Why? Because even if demand remained the same, the supply of goods has reduced which causes prices to increase due to scarcity.
Why? Because China’s manufacturing output has reduced.
Why? Because China has decided to pursue a zero COVID-19 infection policy which has completely failed and continues to fail.
This is the challenge because with large segments of the Chinese workforce quarantined for COVID-19, supply of manufactured goods has dropped which is very bad economic news for China and bad news for the rest of the World.
China needs to get producing and moving goods otherwise inflation will remain high.
Click to read.
Please remember that as this economic violence continues, investors need to remain invested according to your appetite for volatility and when fear and panic take hold, react by buying more quality assets at discounted prices.
At Newealth we are always looking to support and promote our clients wherever possible and if you have any ideas or comments, please feel free to email me or to call me on +61 2 9267 2322.