Sep 17, 2020
China remains 'hugely important' to the global economy, says Standard Life Aberdeen chairman
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A man walks past a closed and boarded up restaurant in the City of London on August 21, 2020.Tolga Akmen | AFP | Getty Images
SINGAPORE — The importance of China's role in the world economy has not diminished despite rising geopolitical tensions, said Douglas Flint, chairman of Standard Life Aberdeen.
"I think China is hugely important to the global economy and to global trade," said Flint, who spoke to CNBC's Nancy Hungerford during this year's virtual Singapore Summit.
"Seven months ago, every single company in the world virtually saw its growth opportunities in Asia, led by China. I don't think that's changed," he said on Wednesday. A very strong middle class and the desire to consume in a different way will continue to drive the economy, he said.Business operates under the umbrella of a geopolitical relationship, and when that relationship is tense, it is more difficult for business to operate.Douglas Flintchairman of Standard Life Aberdeen
But Flint acknowledged that geopolitical tensions can present new challenges for companies.
"Business operates under the umbrella of a geopolitical relationship, and when that relationship is tense, it is more difficult for business to operate," he said. "Having said that, at the business level, our own relationships with our counterparts and clients in China continues to be very strong. It is not impacted at that level, but obviously there's an overriding political relationship that makes things difficult."
He also pointed out that there's a difference between the political rhetoric and actual moves on the ground.
"There are many elements in the Chinese economy that are continuing to open up, and we've seen many of the major U.S. firms — BlackRock, Vanguard, JPMorgan — beginning to expand their operations, even during this period in China," Flint said.
That shows continued progress toward the integration of the Chinese economy into the global economy that both sides have aspired to, he said.
"But the political rhetoric is somewhat distant from what's happening on a commercial side. I think we need to try and bring the two back together and, as I said, I think that should be done through engagement."Weaning off fiscal support
Flint also pointed out that many economies have become dependent on government support as a result of the coronavirus crisis, and it will be difficult to wean them off aid.
"That government support was timely," he said. "It was extremely heavy in terms of its impact, but it can't go on forever."
Countries rolled out generous fiscal packages to help businesses and individuals in the wake of the Covid-19 outbreak and subsequent lockdowns. However, concern has grown over what will happen when that support is withdrawn or runs out.
"I think the challenge for governments across the world is how to wean the economy off governmental support," he added.How to get the economy functioning in an independent way again ... is going to be very important.Douglas Flintchairman of Standard Life Aberdeen
It will be a "significant" challenge because confidence will fall as people start losing their jobs. "That then has sort of a multiplier effect on what happens, in terms of people's willingness to go out and spend, and do the things that would bring the economy back."
"How to get the economy functioning in an independent way again ... is going to be very important, and how to use the firepower that the central banks and governments may have left, to target that very specifically and efficiently to the sectors that need it," he said.
Flint added that the need to build resilience in various sectors is an important lesson from the coronavirus. He said the banking system was reinforced after the global financial crisis, and that helped it to withstand an "extraordinary stress test" this year.
"If the amount of money that had been spent strengthening the financial system had been spent on strengthening the health service and other parts of the economy that have been severely tested in the pandemic, we probably would have had a much lower cost to society," he said.Related Tags
- Fiscal policy
- World economy
News Source: CNBC
US Stocks Fall as Global Markets Swoon
The drops began in Asia as soon as trading opened for the week, and they accelerated in Europe on worries about the possibility of tougher restrictions there to stem rising coronavirus counts. In the U.S., stocks and Treasury yields weakened, while prices sank for oil and other commodities that a healthy economy would demand.
The S&P 500 fell 38.41 points, or 1.2%, to 3,281.06. It extends the index's losing streak to four days, its longest since stocks were selling off in February on recession worries. But a last-hour recovery helped the blue-chip index more than halve its loss of 2.7% from earlier in the day.
The Dow Jones Industrial Average fell 509.72, or 1.8%, to 27,147.70 after coming back from an earlier 942-point slide. The Nasdaq composite slipped 14.48, or 0.1%, to 10,778.80 after recovering from a 2.5% drop.
Wall Street has been shaky this month, and the S&P 500 has dropped 8.4% since hitting a record high Sept. 2 amid a long list of worries for investors. Chief among them is fear that stocks got too expensive when coronavirus counts are still worsening, Congress is unable to deliver more aid for the economy, U.S.-China tensions are rising, and a contentious U.S. election is approaching.
Investors should expect the stock market to remain volatile, perhaps through the November elections, as they wait for these questions to shake out, said Jason Draho, head of asset allocation for the Americas at UBS Global Wealth Management.
Monday's selling was exacerbated by worries about the possibility of more business restrictions in Europe, particularly as the United States heads into flu season, Draho said, and "some investors may be stepping aside."
David Joy, chief market strategist at Ameriprise Financial, noted how Monday's sharpest drops were concentrated in areas of the market most closely tied to the economy's strength, such as energy companies and raw-material producers.
"It seems to be a broader expression of worry about the economy," he said.
Bank stocks took sharp losses after a report alleged that several continue to profit from illicit dealings with criminal networks, despite U.S. crackdowns on money laundering.
Investors are also worried about the diminishing prospects that Congress may soon deliver more aid to the economy. Many investors call such support crucial after extra weekly unemployment benefits and other stimulus expired. But partisan disagreements have held up any renewal of what is known as the CARES Act.
"The stimulus money from the CARES Act, the impact of that, is running off, and there doesn't seem to be any urgency in Washington to get another package together," Joy said.
Partisan rancor is only continuing to rise, deflating hopes further. The sudden vacancy on the Supreme Court following the death of Justice Ruth Bader Ginsburg is the latest flashpoint dividing the country.
Tensions between the world's two largest economies are also weighing on markets. President Donald Trump has targeted Chinese tech companies in particular, and the Department of Commerce on Friday announced a list of prohibitions that could eventually cripple U.S. operations of Chinese-owned apps TikTok and WeChat. The government cited national security and data privacy concerns.
That raises the threat of Chinese retaliation against U.S. companies.
Layered on top of all those concerns for the market is the continuing coronavirus pandemic and its effect on the global economy.
On Sunday, the British government reported 4,422 new coronavirus infections, its biggest daily rise since early May. An official estimate shows new cases and hospital admissions are doubling every week.
Prime Minister Boris Johnson later this week is expected to announce a slate of short-term restrictions that will act as a "circuit breaker" to slow the spread of the disease. The number of cases has been rising quickly in many European countries, and while authorities do not seem ready to return to the tough restrictions on public life that they imposed in the spring, the new wave of the pandemic threatens the economic outlook.
September's losses for markets are reversing months of remarkable gains. Beginning in late March, when the Federal Reserve and Congress pledged massive amounts of support for the economy, the S&P 500 erased its nearly 34% in losses caused by the pandemic. Signs of budding economic improvements accelerated the gains, but growth has slowed recently.