China cuts interest rates by 0.25 percentage points: central bank

Fears that Chinese growth is weakening dragging down the global economy with it are already hammering commodities and world stock markets. For years, investors have been fretting that the market could drop sharply when the central bank starts raising rates.

But that did not happen – causing panic to ripple out and a dramatic drop in shares on Monday.

Brendan Ahern, the portfolio manager of KraneShares, said that the U.S. equity markets have done exceedingly well without a significant correction which has been overdue. By ensuring the yuan had a fixed value against the dollar, the Chinese central bank took this variable out of the Chinese exporters’ equation totally.

It is surprising that the People’s Bank of China has not stepped up support following the moves on “Black Monday” either with a cut to interest rates or the reserve requirement ration for banks. This was done in the hope of boosting Chinese exports and in turn Chinese economic growth.

The carnage was even worse in emerging economies, and while non-China stock markets recovered somewhat on Tuesday, comparisons have nevertheless been made to the 1997 financial crisis, which left East and Southeast Asian economies in tatters and some seeking bailouts from the worldwide Monetary Fund. (CSF) to buy stocks on behalf of the government.

But now the tables have turned, he says.

Brendan Ahern suggested that investors should recognize that there are great valuations and growth opportunities outside of the U.S., such as Chinese equities listed in both the onshore and offshore markets. In addition to the concerns about the yuan’s value and declining exports, a report released Friday showed that China’s manufacturing sector has been contracting more than expected precipitating a stock market crash.

Some analysts say the central bank could telegraph that in the coming days, before its next meeting in mid-September, as a way of helping calm markets. They are however warning of further slumps in the long run.

Cheaper fuel means more money in consumers’ pockets to spend on other things, and it should also help many businesses cut their energy costs.

“If the CNH liquidity in the offshore market continues to tighten, we could see further capital outflows from mainland China“, said Zhou Hao, a senior economist at Commerzbank AG, in Singapore.

Dow component Apple’s (AAPL.O) shares resumed their fall and decreased 1.2 percent to $111.31 in premarket trading, a day after a Gartner report on China’s slowing smartphone sales. That’s because stocks only account for around 10% of household wealth.

‘It is not weakness in China that is driving the global sell-off.

Extreme movements in China’s market will probably become a more common sight, given its peculiarity of being dominated by small-time inexperienced investors. It is trying to keep its economy on course to grow 7 percent in 2015 – its slowest pace in a quarter of a century.

Therefore, in this environment of currency devaluations, failing economies and a series of other trend lines leading to increased global conflict and social unrest, we forecast gold will be highly valued as a safe haven commodity.