Stick to the plan
The global financial markets are becoming more unpredictable and volatile. Chinese shares on the Shanghai exchange closed 0.6 percent lower on Monday, its first day open after the Lunar New Year holiday, debunking the market expectation that it could fall as much as 5 percent. People’s Bank of China Gov. Zhou Xiaochuan warned that Chinese authorities won’t tolerate speculative forces, sending the yuan 1.2 percent higher than the previous close.
The Japanese market, which suffered a crash last week, also rebounded sharply as the Nikkei index soared 7.16 percent to top 16,000. Shares on the Hong Kong bourse also compensated for the 6.8 percent two-day loss last week. Korean shares were also given help from oil prices and bets that the U.S. Federal Reserve would have to reverse its tightening campaign and consider a rate cut instead.
But it is too early to let down our guard. The global financial market is brimming with concerns about a perfect storm on the horizon as big as the 2008-09 financial crisis. With Japan joining European countries in experimenting with negative interest rates, the value of money and assets is crumbling. Nobody knows exactly what the repercussions from negative interest rates will be for the global economy.
Capital has been racing toward safer assets like government bonds, while markets are taking unforeseen and wild paths, like the Chinese market crashing one day and the Japanese bourse soaring the next.
Shares tumbled even as the Bank of Japan took the drastic measure of sending interest rates into the negative to kick-start the economy.
When things turn abnormal, it is best to stick to the plan. Actions must be focused on stabilizing the market. When crisis builds and spills over, it knocks down the weakest first. We must re-examine the resilience and strength of our financial institutions first. Banks must accelerate corporate restructuring and clean up weak debt as well as build up protection against bad debt.
At the same time, market policies must remain consistent regardless of the upheavals in the market. Authorities must not waste ammunition. They must be more cool-headed and calm. Patience, good judgment and strong fundamentals are the best policies in turbulent times like these.
JoongAng Ilbo, Feb. 16, Page 34