How China’s year of the red fire monkey could impact markets in 2016

China’s influence on the global economy and financial markets has continued to be widespread in recent months. Its currency devaluation and stock market tumble last summer were cited as key reasons for the postponement of a US interest-rate increase in September; global energy and commodity producers have been enfeebled by its slowdown; and the country’s progress towards freer capital markets was exemplified by the inclusion of the renminbi in the International Monetary Fund’s basket of reserve currencies.

February sees the start of the Chinese year of the Red Fire Monkey – thought to herald great risks to business and the economy. During this New Year, China’s influence is likely to continue to be felt far beyond its shores, not least in terms of its approach to managing its currency. To Chinese industry, an elevated exchange rate, exacerbated until now by the setting of the renminbi against the (soaring) US dollar, has been highly challenging. For those who trade with the country, the prospect China will weaken its currency – a move for which Beijing’s decision to measure the renminbi against a conglomeration of other currencies appears to pave the way – is unsettling, given the negative implications it would have for the competitiveness of other nations.

Nick Clay – Newton, a BNY Mellon company

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