Talk Money: February 11
World markets have been heavily sold off this year. Here are some of the major reasons why:
THE CHINA SLOWDOWN
Investors know China is slowing. That is why global dairy prices are down and Australia's iron ore exports are suffering. But nobody knows exactly how bad the situation is in China and that is worrying investors.
THE OIL PRICE PLUNGE
Consumers like lower petrol prices. But crude oil has plunged below US$30 a barrel. That is hurting oil exporters like Russia and Saudi Arabia. If prices stay at these levels some oil companies could go bust. They have borrowed lots of money.
GROWING CONCERN ABOUT THE BANKS
Investors are worried about the prospects for the European banks. This week Germany's Deutsche Bank had to reassure investors that it was "rock solid." The nervousness about the banks has flowed through to Australia and Japan. Bank shares have been dumped this week. Lower interest rates around the world are also eating into bank profits.
NEGATIVE INTEREST RATES
Japan's ten year bond rate is negative. That means investors will have to pay the Japanese government to look after their money. Investors believe negative interest rates are a sign of how grim the outlook is for Japan. Around the world interest rates are being lowered and that has sparked concern that central bankers do not have a firm grip on the global economy and are running out of options.
There is a lot of forced selling because hedge fund clients want their money back. That means fund managers are having to sell stocks, even when they think their long term prospects are fine. Some investors have bought stocks with borrowed money. So when the stocks fall they are forced out of their positions. That selling sparks even more selling.
But markets run on psychology and at some point the bargain hunters will arrive.