Welcome Back to 2008 … or Not

SMITH BRAIN TRUST — Global markets have fallen into a crisis that reminds George Soros of 2008, the billionaire investor said today at an economic forum in Sri Lanka. His opinions carry weight, but not everyone agrees with the alarmist tone.

“I think it's reasonable to expect volatility to continue in the coming weeks,” says Kristen Fanarakis, assistant director at the Center for Financial Policy at the University of Maryland’s Robert H. Smith School of Business. “However it isn't clear to me that this is another 2008 crisis, which was a systemic banking crisis.”

She says investors need to remember that much of the volatility in China is due to domestic selling — because foreign investors have limited access to invest in onshore equities in China.

“It’s also possible that we are seeing an acceleration of selling in anticipation of a block on large-scale sales by institutions as a way to stem volatility,” Fanarakis says. “Some of the measures the Chinese have in place, such as halting markets, may be adding to the overall volatility.”

The market is also trying to figure out the true extent of the slowdown in China. “The data published isn't always entirely accurate,” she says, “which is putting further pressure on oil markets.”

The continued oversupply of oil, coupled with a potential drop in demand from China — which consumes about 12 percent of the world's supply — has led to the lowest oil prices in over a decade.  “These low prices are bad for energy companies, but should be an overall positive for the economy,” Fanarakis says.