Barely six years after the global economic crisis, world stock markets have again been hit by the recent crash of the Chinese financial markets and a possible slowdown in the Chinese economy. Globally, investors are currently moving away from risky assets, such as stocks and government bonds, as they seek to re-evaluate exposure to risk.
About two weeks ago, in a surprise move, China, the world’s second largest economy, devalued its currency the Yuan against the dollar by 4.4 percent — the largest drop in decades. According to a statement by the People’s Bank of China, the move was designed to allow the currency to reflect the true market value.
In response to China’s devaluation, global prices for crude oil and some other African commodities fell further, on the suspicion that such a move means that growth in China is slower than previously thought. On Monday, China’s benchmark, the Shanghai Composite Index was down 40 percent since its peak in June of 2015 after falling another 8.5 percent. On Tuesday, the Shanghai Composite, which dropped by 22 percent over the past four days, fell by another 7.6 percent.
The downward pressure on the Chinese economy has also impacted the price of crude oil. Now hovering around $38.24, West Texas Intermediate crude has lost 5.5 percent of its value since its most recent high of $40.45 in October of 2014. This presents a problem for African oil exporting countries like Nigeria and Angola who earn majority of their government revenue and foreign exchange from crude oil sales.
China is currently Nigeria’s leading trade partner. Nigeria imported ₦336.5 billion worth of goods and services from Chinese companies in 2014.
China’s slowdown and the devaluation of its currency present an additional problem for Nigeria because a weaker Yuan means manufactured Chinese goods will become cheaper, possibly affecting Nigeria’s ability to spur local manufacturing.
Like many equities markets around the world, Nigeria’s Stock market has been affected by China’s stock market crash. At the end of Monday’s trading session, the Nigerian Stock Exchange recorded losses of about N228 billion. The average decline stood at 2.22 percent, as high losses by a majority of stocks overwhelmed modest gains.
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Other equities markets across Africa have fared better. At the end of Monday’s trading session, the Nairobi Stock Exchange reported a 22.3 percent rise in pre-tax profit for the first half of the year, and said it was on track to launch new derivatives market this year.
(venturesafrica)
