Friday, 28 August 2015

What is the reason for the recent stock market crash on Monday 24 Aug 2015? Is the next recession on its way?

There are a number of reasons being cited for the sell off that the markets witnessed on August 24, 2015. Chinese economy slowing down and its currency devaluation, falling crude oil prices etc.

It is important to understand that the crash didn't just happen overnight or something that wasn't on the cards. 

Crisis in Greece have been doing the rounds for the past several months which had made the sentiment across the Global financial markets, nervous.

Chinese markets have been witnessing major sell-offs for weeks now. Adding to it, the Chinese currency devaluation.

Crude oil hasn't been able to check the downfall from $100/bbl to $45/bbl levels, and continues to fall.

World financial markets have been carefully watching and waiting for the Fed's decision on Quantitative Easing, which had made the investors nervous about its impact on the markets.

The sentiment just weakened further last weekend resulting in a sell-off. 

Markets largely work on sentiments. Sentiment weakened, market crashed.

You can understand this "sentiment" concept by the fact that Indian markets rallied last year ONLY because of coming of a stable government at the centre, market hoping for reforms etc, while nothing had really changed for the economy.

World markets and economies are dependent, to an extent, if not completely, on other nations' economies,  and take cues from international financial markets. For obvious reasons, if two nations have strong economic and commercial relations, and one of the country goes in to distress, the other is bound to bear the brunt. The US and China are the strongest economies in the World and are interdependent.

Financial distress in China is bound to hurt the US, strong. One reason led to another and consequently the markets witnessed a major sell-off across the Globe. 

While nothing can be said with surety about the next recession, things still remain messy. It still remains to be seen how the world markets fare further, with possible Government interventions, like, recently, the Chinese Government cut interest rates, to help the economy.

Let's hope for the best.

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