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China battles financial deflation

China faces its fastest deflation in 15 years. This poses much risk and seems to be an ongoing issue. Will the Chinese government now step in and aggressively support the stock market? Is it a risk or an opportunity? 

China is facing significant economic headwinds as consumer prices experience the fastest decline in 15 years, which could impact investors worldwide, warns deVere CEO Nigel Green.

“The latest data suggests that deflation could be entrenched in the world’s second-largest economy, which raises global red flags for investors. The impact can be expected to reverberate across various sectors, prompting a re-evaluation of investment strategies.”

According to statistics released on Thursday, the world’s second-largest economy’s consumer price index fell 0.8% year on year in January. This is the fourth consecutive month of decline and the biggest contraction since 2009.

The slowdown in demand for raw materials in China could significantly affect global commodity prices in sectors like mining, agriculture and energy. This could cause investors to lose money in markets where companies relying heavily on exports to China are experiencing decreased sales.

Three years of struggling economy has erased $7 trillion off China’s market value.

Will China adopt a more aggressive approach to stimulate growth and restore confidence in international investors? China needs an open-door, internationally-minded, transparent approach to rejuvenating the economy and attracting foreign investment again. Will China be able to claw its way back to a strong economy?

This could be time for investors to reassess and potentially rebalance their portfolios to focus on risk management and stable assets.

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