While advisors are smart to consider the possibilities of Greece being a contagion for other countries leaving the EU such as the UK, economist Dr. Sherry Cooper makes it abundantly clear that China, not Greece, is the more worrisome economic situation when it comes to Canadian investors.
“Oil prices have fallen sharply once again in recent weeks, driving the Canadian dollar down sharply yesterday,” Cooper wrote in her newsletter Tuesday. “Adding to the loonie's rout was the news that business spending plans for non-residential construction, machinery and software have been slashed, largely reflecting the cutbacks in the energy sector.”
The Chinese buy Canadian oil by the tanker load.
A further decline in Chinese stocks means the country has less money to invest here in Canada including the purchase of oil, natural gas and other energy resources. In addition, it’s possible the decline in stock prices in China becomes a domino effect in other parts of the world and Canadian markets would no doubt feel some pain given our preponderance for energy and financial stocks.
Not convinced that China is staring into the financial abyss?
The government is so desperate to shore up the market that homes are now acceptable collateral for borrowing to buy stocks,” Cooper writes. “
China could well be setting the stage for another financial time bomb to match its local government debt and real estate bubbles.”
The Chinese middle class have invested heavily in stocks in part because of the government discouraging consumer real estate investment. As many have purchased stocks on margin and are now facing margin calls, the scramble for cash has the potential to further exacerbate the current economic slowdown.
“The Chinese stock market has always been volatile and anyone who has been invested for more than the past few months has done well,” Cooper says. “Nevertheless, the economic slowdown is troubling and already impacting commodity markets and resource-led economies all over the world.”
Canada’s at the top of the list.
See more: Advisors: China got you worried?