Yesterday, on 5 August, during the global collapse, global stock markets suffered losses totalling $6.4 trillion. The catalyst was the biggest drop of 13% in the Japanese Stock Exchange since 1987, which caused a trading halt. Even the price of oil fell to $76. Due to global economic instability, the cryptocurrency Bitcoin fell by more than 16% and dragged all other cryptocurrencies down with it.
Also, shares of Nvidia -10%, Tesla -12%, Apple, Microsoft, Google, Amazon -10% fell in the premarket. Despite the fact that today global stock markets have started to level off, economists have already dubbed yesterday “Black Monday”. How it will affect the global economy in the future, why such a collapse occurred and whether it will affect Ukraine – [kommersant] found out from Ilya Neskhodovsky, an expert on economic issues, PhD in Economics and Head of Analytical Department of ANTS network.
on 2 August, weak US employment data were announced, and today Goldman Sachs has already raised the probability of a recession in America from 15% to 25%. Did all this influence yesterday’s collapse of global stock markets?
You need to understand that the reason for the fall is not in the economic sector. I believe that the unemployment figures published in the US really showed that the country is entering a recession (a phase of the economic cycle during which there is a general decline in economic activity – ed.)
In other words, yes, there should have been a certain market correction, because these indicators are not good, but they are not catastrophic either.
And when this so-called “adjustment” began, the Japanese market reacted to it. They had a significant increase in the discount rate to 2.5%. This affected the profitability of many assets. Given that they were not that profitable, but there were some, let’s say, risky ones, people started to exit them.
There was also the factor that tech companies have a certain disproportion and a bubble, meaning they are overvalued. Yesterday, all of this came together, which led to investors’ decisions to exit, sell, and then turned into panic.
By the way, there is a rule – never act in panic, any investor should be emotionless. If there is a fall, there is always a correction, so you don’t always have to sell.
I wouldn’t say that there has been a pullback today, because you need to look not at 1 day, but at least at a weekly basis. Let’s see how the US markets react to this.
Will it pass without consequences for the whole world?
I do not believe that such a fall, followed by a sharp rise, will pass without a trace. Of course, the emotional factor I mentioned above was involved. However, this is too high a drop. And the pullback happened too quickly. We need to see how other markets will react, and I am convinced that the growth will calm everyone down, so there will be no further fall.
But will there be a return to the prices that were there?
Perhaps, yes. For example, someone may decide that now is the best time to buy shares in Apple, Microsoft, Amazon, Intel and other tech giants that have fallen in price. Or maybe not. Probably, it will still be the correction that everyone expected.
Will there be any impact on Ukraine or not?
We are virtually isolated from the stock market. During the 1998 crisis, it was our isolation and the absence of a stock market in Ukraine that allowed us to suffer almost no negative consequences caused by that crisis.
All our investors left a long time ago, because a full-scale invasion began. The Ukrainian stock market today is 90% government securities.
If we had a developed metallurgy industry, we would have falling prices for metals. This would have affected the exchange rate. Now the steel industry is not in the same volume. We mainly produce agricultural products, which are not affected by these crises. It has stable demand and its own fluctuations.
It is unlikely that we will feel such crises much now or in the future. We have agreements with our international partners and sufficient revenues. Our domestic course will be shaped by other factors.
For example, the Ukrainian energy system may be hit, some companies may not be able to operate – this may affect the exchange rate in our situation.
In the meantime, the fluctuations that we have seen – the dollar jumping to UAH 41.7 and now falling to UAH 41.11 – I believe that this is the poor performance of the National Bank, which allows such fluctuations over a short period.
As early as 2025, the hryvnia exchange rate against the dollar may rise to UAH 45. This forecast is contained in the Budget Declaration for 2025-2027. What does it depend on?
Our foreign exchange market is manual and is fully influenced by the NBU. Whatever exchange rate the NBU wants, that’s what it will be. If it wants, it will be 45. If it doesn’t, it will be 41. Last year, we had a negative trade balance of 26 billion. This year is no better.
Although last year’s revenues from our international partners were 42 billion. This year it will be less, but still enough. We will compensate for the difference accordingly.
Everything depends entirely on the NBU.
Finally, let’s get back to global issues. Could Black Monday turn into a Black Week or a Black Year for global stock markets in the future?
It is possible, but only in one scenario. There are certain pent-up problems in the Chinese economy right now. If they become quite obvious, then yes, a crisis is likely.
In contrast, the economies in the US, Japan, and the European Union are stable, and Russia is small – nothing depends on it. It has completely switched to raw materials. But China, which produces a lot and consumes a lot, can drag the whole world with it in the event of a crisis, but so far it is coping.
So we should keep an eye on China?
China does not have to provide complete and high-quality information on its economic situation. We cannot be 100% sure that the information that is published is true. China can hide the problems it has from the rest of the world because of the peculiarities of its governance and the state’s ability to influence all this
Who else besides China?
Japan has been keeping a negative interest rate for a long time, and this year it started to change its policy. And yesterday’s situation, among other things, was caused by the increase in the discount rate.
People started to get scared that the return on their capital would not be enough to attract them, and as a result, they started selling it. “I’m selling because I know that the funds are more expensive, so I’d rather fix the profit I have. Let others keep it.” In fact, this was the paradigm of yesterday. It is quite likely that it will be repeated.
Author – Alyona Kaplina