Hype-free zone: How the nosediving Chinese stock market will affect NZ

What a difference a day makes. In June, after rising steadily for several months, the Chinese stock market crashed, and hard. Though the Chinese government has been scrambling to correct its economy’s course since then, yesterday, it happened again.

Long story short, China's Shanghai Composite index suffered a fall of 8.49%, the largest single-day drop in eight years. The crash was triggered by the publication of a survey on Friday that said that China’s manufacturing activity had fallen to a six-and-a-half year low, despite the government’s best effort to reverse the trend.

The report sparked fears that the Chinese economy is falling headlong into a severe economic slow down, and as the shock spread outwards, European and US stocks nose-dived, the Australian stock market plunged and the New Zealand dollar sagged by a full two percent.

While some ground was reclaimed yesterday afternoon, today the world remains shaken by the fall, with Twitter dubbing the event #blackmonday.

So just how much of that damage can we expect to hit here?

All things considered, while there are plenty of grim headlines out there, for New Zealand, it’s most likely a case of sitting tight and waiting for the dust to settle.  

So as markets worldwide go into crisis mode, Idealog cornered Hivenews founder Bernard Hickey, to find out, without the hype, just what the chaos likely means for New Zealand, which industries should brace hardest for the hit and…could some good actually come out of the chaos?

Idealog: Hi Bernard. A quick look at the headlines today could give you the impression that the sky is about to fall. But let’s talk about some specific Kiwi industries. For example, how do you think the nosediving Chinese stock market will affect….

…New Zealand’s established tech?

“The China stock market slump is irrelevant to those large established technology firms. Most of them depend on the domestic economy and services organisations in particular, who are only distantly affected by financial market turmoil overseas. They also usually have clean and debt-free balance sheets, which also reduces the impact of financial market volatility.”

….New Zealand’s emerging tech?

“New Zealand's emerging technology sector is barely exposed to the Chinese economy and even less connected to China's extremely volatile and some would argue unrepresentative stock market. Their funding comes from VC firms and private families who won’t be directly affected by China's slump.”

…New Zealand’s infrastructure sector?

“The infrastructure sector is more directly connected to the fortunes and spending appetites of Government and domestic investors, who are also not exposed to China’s slump. This sector cares a lot more about Government spending plans. They may actually benefit if the Government pulls forward infrastructure spending as some are calling for.”

…Kiwi commodities?

“This sector is the most exposed to the vagaries of demand from China in particular. We've already seen that with this year's dairy price slump, although NZX Dairy Futures prices indicate another rebound next week. China’s stock market slump is more a correction to an unsustainable bubble pumped up by margin lending than a true canary in the mine for the Chinese economy.”

…New Zealand retailers?

“Retailers in New Zealand could benefit from troubles in the Chinese economy as the Government there looks to boost exports by pushing down on the yuan, which essentially exports deflation from China. Retailers buying directly from China may see further falls in prices.”

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Perhaps Douglas Adams said it best: don't panic. As The Atlantic points out, chaos is the only constant in any market, so maybe the best course of action here is to simply relax, breathe deeply and 'wait for the headlines to change'.