The upside for China in the US stock market plunge – from the Chinese economist who tipped a big fall
Zhang Ming says the US recovery is real but there are various negative factors in play
A record points plunge in the US stock market this week could be good news for China’s exporters, according to a Chinese government economist who predicted a big correction in American shares four weeks ago.
Zhang Ming, a senior researcher in international investments at the Chinese Academy of Social Sciences, said the fall could strengthen the US dollar as investors flee risk, which in turn would help to correct the overvalued yuan and ease pressure on Chinese exporters.
“If the fall continues, it could reverse the yuan’s strengthening against the greenback and we could see a mild depreciation [of the Chinese currency],” Zhang said on Tuesday. “That would be a result that Beijing would be glad to see. The strong yuan is of little benefit to the economy.”
In a comment piece in Communist Party mouthpiece People’s Daily on January 11, Zhang said it was “very likely” the US stock market would fall 20 per cent this year because of the high price of American stocks and the prospect of monetary tightening by the US Federal Reserve.
He said two major indicators – the 10-year price-to-earnings ratio and the CBOE volatility ratio – showed there was excessive optimism in the market and it was time to sell.