PYMNTS-MonitorEdge-May-2024

‘Interesting Times’ For China, Stocks And Payments

“May you live in interesting times,” an old Chinese proverb wishes – and the “interesting” is not necessarily meant as a compliment or a blessing.

For the Chinese stock market — and markets around the world — and payments companies, these are indeed interesting times.

In only the latest iteration of turmoil, Chinese stocks fell yet again on Thursday, enough so that trading was halted for the day – and this time, barely a half hour into trading. That’s not a good sign, as it foretells piling on, rushing for the exits, lemmings on the cliff – choose your own euphemism. And it could be the case that the circuit breakers that seem to be used as a stop gap may have to be abandoned in favor of something more drastic. But what? A stock market holiday? More government injections of liquidity?

Markets around the globe stuttered and slid in sympathy, and even that bellwether of capitalism, the U.S. Dow Industrial Average, was off more than 2 percent on the day headed into the closing hours. Outpacing all indices in the U.S. was the tech-heavy NASDAQ, which stood down 2.5 percent into the close, with a key measure breached. The index is now down 10 percent from its peak, which to Wall Streeters signals a correction.

The skittishness this time around can be traced (at least somewhat) to newswire stories that Chinese government officials are under pressure to devalue the nation’s currency by a wide range, as much as 10 percent to 15 percent, in an effort that would be designed to spur demand for its products and help shore up weakening numbers. Key among the data that might lead to devaluation: dismal manufacturing numbers. Indeed, the nation’s central bank set the renminbi exchange rate at about 6.56 to the dollar, which would be the lowest rate about six years. But will there be a near-term floor under the currency in this case? Maybe not, and a vicious cycle – where investors send currency out of the country while also selling stocks – can be exacerbated.

The Chinese government’s extension of a ban on large asset sales by institutional holders may be a ticking time bomb, as it is likely that the professional investors are just as itchy as anyone to get out of the market during the panic, in order to raise cash and at least wait till the tumult quietens.

What does this all mean for payments? As an industry, it’s hard to imagine a continued devaluation – engineered by the government but then taking on a velocity of its own – cheering innovators within, and outside of the nation’s borders, looking to launch or grow businesses. After all, it takes money to make money, especially in startup and FinTech segments, and even with financial backing who can be assured consumer demand will be there? Could cross-border payments be frozen as consumers pinch their pocketbooks, which suddenly will have less buying power? Will companies delay their forays into global expansion, preferring not to risk the vagaries of currencies on local demand?

No wonder then, that common stocks of Internet behemoths such as Alibaba and Yahoo, both well tethered to the country and its fortunes, are taking it on the chin on a chaotic Thursday. Other companies, like Apple and Verifone (with ostensibly less reliance on just a few hotbeds of geographic demand), saw more measured declines, with stocks down less than Chinese counterparts and roughly on par with broader bourses. That’s scant consolation, but then again these are interesting times.

PYMNTS-MonitorEdge-May-2024