George Soros doesn’t mince words when he talks about the condition of the global economy. Soros says most of the BRICS emerging markets, Brazil, Russia, China and South Africa have been struggling for the past two years. India is the only member of that union that is still growing at a healthy rate economically speaking. Soros believes there is going to be a global crisis that will be reminiscent of the 2008 meltdown. In fact, Soros thinks this crisis could be worse than the one eight years ago.
Mr. George Soros is basing his prediction on the economic mayhem that is going on in China right now. Recently, Goldman Sachs, the investment bank, cut its forecast for the yuan. China currency is expected to depreciate against the dollar at a faster rate than their previous forecast. One dollar can buy about 6.6 now, but in 12 months that dollar will be able to buy 7.0 yuan. By the end of 2017, the dollar will buy 7.3 yuan, and that is why several hedge fund managers started to short the yuan against the dollar recently.
A weaker yuan means China will continue to suffer from a weak manufacturing base and a consumer base that has lost confidence in the government. Chinese investors are moving money out of the two Chinese stock markets at an accelerated rate even though the government has injected trillions into their markets to keep them stable. The Chinese government has also pumped trillions od dollars into the central bank to keep the value of their offshore and domestic yuan up, but economists believe the government won’t be able to reverse the damage that has been done. Mr. Soros thinks it will take at least three years and more money for China to convert their economy to a consumer-driven economy.
Investors in markets around the world reacted to the weak yuan and the news that China’s manufacturing sector is shrinking faster than expected by selling stocks and investing in safer investment vehicles like gold or silver. Every time there is a devaluation of the yuan, China’s economy gets a little weaker, according to Mr. Soros.
China’s central bank is manipulating the yuan, so hedge fund investors that are taking a short position against the yuan don’t reap the billions they expect to earn at China’s expense. But as Soros points out in a Bloomberg.com article, the Chinese can’t continue to spend the kind of money it will take to keep their currency in an overvalued position against the dollar.
The bottom line, according to Soros, is the global economy is going to feel the effects of China’s issues and markets around the world will experience a major selloff. Soros thinks all the signs are obvious and by the third quarter of 2016, most of the world will be in a recession.