Since the financial crisis in 2008, the world has spent ten years in capital surplus. However, ten years later, the global market ushers another financial crisis. For this major potential trend, Anbound's chief researcher Chan Kung has given a clear indication that the financial crisis will erupt in 2019-2020.
During a guiding session of the macro team in analyzing the RMB exchange rate, Chan Kung pointed out that, "the trend of changes in the RMB exchange rate is a divergent trend; if the 2019-2020 Financial Crisis does not break out in 2019 and the situation is stable, the reasonable expectation of the exchange rate should be 6.7. That is to say, along with the edge of the new window period, this will be a strong trend. If the 2019-2020 Financial Crisis breaks out, China cannot be unaffected, and the exchange rate will return to 6.8."
It should be pointed out that the "new window period" mentioned here refers to a new stage in which the prospects for U.S.-China trade negotiations have eased as the global economy slows down and the U.S. economy and capital markets slide down from the peak. Changes in the background environment have also brought about changes in the judgment of the financial market. In the new window period, the factors affecting the RMB exchange rate have become relatively moderate, but the environment of the global market is deteriorating, which continuously driving the formation of the new financial crisis.
In a report released on January 8, 2019, the World Bank estimated that the global economy would grow by 2.9% in 2019 and 2.8% in 2020, which is 0.1 percentage points lower than the June 2018 forecast. From the World Bank's perspective, an important reason for the global economic slowdown is the shrinking global trade. The World Bank's lowered the expectation on trade volume in 2018, 2019 and 2020 by about 0.5 percentage points, where it believes that the global financial environment is tightening, industrial production is slowing, trade tensions are intensifying, and some large emerging markets and developing economies have experienced severe financial market pressures. According to a report by Institute of International Finance (IIF), global debt in the third quarter of 2018 reached US$244.2 trillion, an increase of 3.9% from US$235.1 trillion in the same period last year, and global debt was US$242.5 trillion in the second quarter.
The U.S. economic downturn is an important risk in current market concerns. A series of negative signals have appeared in the U.S., such as the slowing down of the economic growth, a sharp fall in technology stocks that resulted in the fall of the U.S. stocks, a record high in the U.S debt, the depreciation of the U.S. dollar due to the withdrawal of funds, and the intensification of a series of economic and political struggles in the U.S., as well as the partial shutdown of the U.S. government that is damaging the market. These series of "bad news" are imposing upon each other, and making each other more damaging, which has increased the market's concerns about the U.S. economy and the U.S. stock market. Since the financial crisis in 2008, the U.S. has been the biggest beneficiary of the capital surplus caused by the central bank's monetary easing and urbanization. Now, the U.S. economy and capital markets are starting to slip from the peak, and this trend will continue to strengthen future pessimistic market expectations.
The situation in Europe is rather worrying as well. In fact, Europe has not fully entered the stage of healthy recovery since the 2008 financial crisis. When the U.S .economic and financial markets had entered a stable recovery, the European debt crisis was still going on. Greece and Italy have faced a debt crisis and caused signs of division in the Eurozone. France has been caught up in an internal crisis because of the Yellow Vest movement. Emmanuel Macron, who projected himself as the core leader of Europe, has enough economic problems to deal with back home in France. As the largest economy in Europe, the latest economic statistics is far from ideal. According to the latest statistics released by the Federal Statistical Office of Germany on January 15, 2018, in Germany GDP growth was only 1.5%, down from 2.2% in the previous year. Although the German economy has grown for the ninth consecutive year, its growth momentum has weakened significantly compares with the previous two years.
The most damaging event in Europe is the Brexit deadlock; the best practice of political cooperation in human history has broken down because of Brexit. Since the Brexit referendum took place, there have been many difficulties in the negotiations with the EU. Although Brexit has different political significance, the actual economic damages are constantly occurring and intensifying. The latest bad news is that the Brexit plan, reached by the British government and the EU with much difficulty, was rejected by the British House of Commons in the majority. This is a major blow to the Theresa May's government which has also exacerbated the uncertainties of Europe's future.
Neither is the situation in the world's major emerging market economies faring well. As the largest emerging market country, China is currently in the situation of maintaining the 6%. China's transformation and structural adjustment will drag down its economic growth. Meanwhile, India's economic growth rate will remain above 7%, but because its economic scale is not too large, it would be difficult to play a significant role in stimulating the economy, and the 200 million people on strike against "anti-labor" policies in India would have also cast a dark shadow over the future of the Indian economy. The economies of Brazil, Russia, South Africa, and other countries are not optimistic as well, and Brazil and South Africa are still facing domestic political issues to some extent.
It can be seen that with the slowdown of the U.S. economic growth, the downward pressure on the Chinese economy, and the European economy in a state of fatigue. One can be sure that the global economic downturn is certain and this will significantly affect the confidence of capital markets and investors. When the market expects a consistent turnaround, excess capital, high debt, and low leverage will converge into a pessimistic flood in the financial market, triggering a new round of financial crisis. The measurement of a series of financial data in the global market also points towards the outbreak of the financial crisis, which is approaching the tipping point, and likely to erupt from 2019 to 2020.
Final analysis conclusion:
Risk factors in the global economy and financial markets are accumulating into pessimistic expectations-driven market torrents, which will likely ignite the financial crisis in the 2019-2020 period.
