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EU, not China, likely to be trigger for next crisis

The Monetary Authority of Singapore’s Financial Stability Review highlighted the global economic uncertainty and risks to Singapore (“More uncertainty ahead but system is resilient: MAS”; Nov 28).

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Wong Shih Shen

The Monetary Authority of Singapore’s Financial Stability Review highlighted the global economic uncertainty and risks to Singapore (“More uncertainty ahead but system is resilient: MAS”; Nov 28).

It is also the start of a perilous geopolitical outlook, especially with Islamic State terrorism.

With a potential global sovereign debt crisis looming and deflation arising, it is important to understand how markets work and how to protect and grow our assets as a country, company or personal investor.

Some analysts think that the recent stock rout and slowing economy in China will be the trigger point for a global economic crisis.

But the Shanghai stock exchange is up 28 per cent since mid-August, making it one of the planet’s best-performing share markets. China will be driving growth for Asia.

A proof of this is Alibaba’s recent annual Singles’ Day online shopping event in China: Sales hit an astounding US$14.3 billion (S$20.2 billion), a 54 per cent increase over last year’s US$9.3 billion.

It is therefore probable that Europe will be the trigger for a crisis.

First, Germany, the European Union’s key driver of growth, is slowing down. Economic growth and factory orders continued to fall in the third quarter.

The refugee crisis will cause an additional financial strain on Germany’s economy, adding to the country’s woes.

Portugal’s and Italy’s economies are also weakening. Greece continues to be a potential economic worry.

Second, Paris suffered a terrible terrorist attack recently. Such attacks may spread through Europe because of its open borders. This would affect EU integration, as countries may be pressured to close their borders to mitigate terrorism, and trade would suffer.

Third, the euro has continued to fall in the past few months, and a plunging currency is not good for the EU.

Fourth, deflation is worsening in Europe, Japan and the United States, despite the flood of credit in the market, with no inflation in sight.

With these geopolitical and economic factors, it is important for investors to understand how markets react and to stay prudent next year. Essentially, fundamentals do not drive markets. Market cycles and collective human behaviour and psychology do.

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