On Monday, September 21 CGEG held a panel discussion on the globalization of financial markets with James Healy, Sadeq Sayeed, and Leah Zell.
Globalization has been a buzz word recently, with its impacts being felt across sectors and regions. James Healy, Chief Executive Officer of Capra Ibex Advisors; Sadeq Sayeed, Chairman of Metage Capital Limited; and Leah Zell, Founder and Portfolio Manager of Lizard Investors LLC, discussed its specific implications for financial markets at a panel held on Monday, September 21 on The Globalization of the Financial Markets: China, the Fed and Future Policy Options. The panel was moderated by Jan Svejnar, Director of the Center on Global Economic Governance, which organized the event in conjunction with the SIPA International Finance and Economic Policy Concentration and the SIPA Finance Society.
Leah Zell began by discussing the current state of the Chinese economy, whose system she referred to as “authoritarian capitalism,” in light of the volatility experienced in its markets throughout the summer. Zell made three observations: 1) Chinese challenges are not new and are actually embedded in the political economic model of the country; 2) Eventually leaders in China will have difficulty keeping on top of these problems, even if the timing of this is hard to predict; and 3) These Chinese issues will have spillover effects due to increased globalization.
Zell noted in particular that the stock market issues faced by China don’t actually say much about the state of the economy, but more about “the dysfunctionality of the financial sector.” This is despite the fact that she feels that China is in a better place than most emerging markets to deal with its problems since it has a trade surplus and relative political stability, among other positive economic indicators.
On her third point related to globalization, Zell said, “measuring the exposure to China, by direct bilateral trade, understates the impact because the spillover effects to China’s trading partners, more particularly, are the emerging markets and that would be the contagion mechanism that would threaten global growth.”
James Healy then looked domestically, discussing the state of the US economy in the context of the Federal Reserve Bank’s decision to hold interest rates rather than raising them. He specifically cited the tension between the two parts of the Fed’s dual mandate, employment and growth and inflation, as part of the reason for their decision to keep the Fed Funds Rate at twenty-five basis points.
Healy listed numerous indicators of economic growth and employment that show positive trends, which suggest that the Open Market Committee would be inclined for a rate hike. In contrast, he showed data on the inflation rate and noted that it is currently lower than the target and in a downward trend. It would be this concern about the inflation rate, Healy stated, that would have led to the Fed’s rate decision rather than concern over the state of economic growth in the US or elsewhere.
Finally, Sadeq Sayeed looked to bring those two macro components together by discussing how all of these issues are interconnected. He focused in particular on the circularity of how the markets react to various factors and how policymakers respond to these market reactions.
Sayeed took the market’s reaction to the Fed’s rate decision as an example. In the days before the Fed decision, the stock markets went up and then as soon as the Fed began to make its announcement the stock market started to decline. He also cited the situation in China over the summer as an example, where the market reaction was based on what it believed the Chinese government would do in response to any volatility.
This caused him to ask the question, “To what extent are policy makers reacting to markets and to what extent are markets reacting to how policy makers will react to markets?” He did not have an exact answer, but he noted that if there isn’t a better understanding of this relationship it is very likely that we will make mistakes in understanding how the economy will look in the future.
- Samantha Weinberg, MPA '16