CNBC’s Ron Insana warns that while the world frets over Greece, investors really should have much more fear about China.
He said four recent global crises may provide a cruel summer for investors: Greece, China, Puerto Rico and the much-anticipated Federal Reserve rate hike.
China's stocks closed in bear-market territory, and uncertainty about Greece shook sentiment across the region, Dow Jones Newswires reported.
A move by China's central bank over the weekend to cut interest rates failed to give a sustained lift to China's main stock market, which has fallen 21.5 percent from a high on June 12, crossing the 20 percent threshold that defines a bear market. Stocks have been under pressure over the past two weeks after a yearlong debt-fueled rally.
Meanwhile, Puerto Rico claims it can't pay the $72 billion owed to its creditors and wants a moratorium on payments until it can renegotiate its external debt, Insana said.
Adding to that, New York Fed President Bill Dudley said that a September rate hike by the Federal Reserve is quite possible, given the recent strength of U.S. economic data.
“Individually, these events wouldn't have a huge impact but taken together, they could easily create a summer of discontent for equity- and bond-market investors,” Insana wrote in a commentary for CNBC.
“Having said that, this could also play out like 1994, 1997 or 1998, where external crises led to a friendlier Fed and extension of the economic recoveries and stock-market rallies, here at home,” he said.
“The U.S. is a bastion of stability when compared to almost any other country in the world. Any fallout should be limited, or at least one would think, given past history and past policies,” he said.
“Of course, this is all predicated on whether or not central banks can get any friendlier than they already are,” he said.
“With zero interest-rate policies in force in most of the world, and unconventional monetary policies also being widely deployed, friendly may not be enough this time around. So, sit tight for this week, but if China overtakes Greece as a point of concern, it may be time to protect your portfolio from the rest of the world.”
Some experts warn that the situation in China will only turn darker.
Zhang Gang, a strategist at Central China Securities strategist in Shanghai, called Monday’s losses “panic selling” that will likely continue as margin investors are forced to liquidate their holdings and the recent selloff spurs more mutual fund redemptions.
The Shanghai gauge had surged more than 150 percent in the 12 months prior to its June 12 peak as investors speculated monetary stimulus would revive the weakest economic expansion in more than two decades, Bloomberg News reported.
The doubling in China’s main indexes in the past year coincided with the weakest economic growth in a quarter century.
“We expect the cuts to temporarily halt a possible crash in the market — had the government not acted, a stampede might soon develop as margin calls force leveraged positions to unwind,” David Cui, head of China equity strategy at Bank of America Corp., wrote in a report dated June 28.
And one prominent economist agrees with Insana – don’t worry about Greece.
International investor Jim Rogers is urging Greece to just embrace the inevitable and “go bankrupt, get it over and start it over.”
“If you ask me what they should do – is just go ahead and go bankrupt, get it over with and start it over. But all this calling names and blaming other people is not going to do any good,” he told RT.com.
“Greece is a tiny part of the European economy and it’s nothing, it’s insignificant for the world economy. It’s a lot of headlines and a lot of noise; it will cause the markets to be disrupted for a while. But three months from now, none of us will remember if Greece goes bankrupt.”
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