Hold the front page - the Chinese economy is slowing down. Who didn’t see that one coming? In an age of intertwined economies, extreme volatility in China is being exported globally. Calamity across the Chinese commodity markets this week is having largely foreseen global consequences. If ever there was an argument against globalisation, this interlocking of economic liberalism must form part of it. One thing is clear: China is undergoing a tectonic shift in its economy and this will impact markets great and small across the globe. As the saying goes, what goes up, must come down and China, with its many trillions in state-backed debt, is slowing down. The question is how will this impact the global economy and more importantly crowdfunding. As the BBC would say: ‘And now the (crowdfunding) shipping forecast.
Crowdfunding sees itself as divorced from mainstream finance. Unfortunately anything which involves money is part of the same economic system. If China catches a cold, not only will the London Stock Exchange catch it too, but so will a great many facets of the British economy. The European markets lost over a trillion Euros on Monday, and whilst much of these losses were regained, it shows potential volatility within the entire marketplace. Crowdfunding is not immune from this.
When markets go down there is less cash available to invest (illiquidity). Global volatility will impact the amount of money available to flow into start-ups. In a world of 24-hour news, horror headlines of economic ruin can only have an impact on consumers’ every habit. It matters not whether they are looking to buy a new car or invest in a start-up. Financial anxiety will always have a negative impact. Equity crowdfunding is all about normal people investing in start-ups. Remove the belief of access to cash, and crowdfunding volumes could be impacted. It is far too early to say if this will be the case. The markets have shown a remarkable ability to resurrect themselves. You could even flip this argument on its head. Investors may look to invest in and lend more to companies where the pay offs in the long-term might be better. In a bear market, crowdfunding simply becomes the better bet.
Crowdfunding may use market spasms as an opportunity to show the benefits of the sector. The main markets are so far removed from the companies and commodities they hawk. Crowdfunding argues that it is different. And whilst the majority of this argument may be total PR. The Nesta report released last year, showed that most investors use crowdfunding primarily as a place to get potential returns. Accordingly the number of crowdfunders might increase with the rise of volatile stocks and commodities markets.
With start-ups once again finding mainstream finance impossible to use for their funding needs, crowdfunding could actually gain from a much larger number of businesses seeking to use its services. Deal flow could increase and the number of good deals available to crowdfunders improve. There is an argument that crowdfunding’s growth over the last 5 years has been due to the economic turmoil of the last decade. If economic Armageddon takes place, why should it differ this time?
This might all be a load of rubbish. China has been pushing new industries for the last decade to cater for this very moment. Readjustment and reorientation are the names of the game. Basically anything, which is a growth driver and isn’t built on a stack of debt, goes in China. The growth of the Chinese stock markets has hit normal people the most. And yet, whilst the losses in the markets have been truly enormous, the Chinese consumer market is in pretty decent shape. For instance retail sales in July are up 10.5% from a year earlier. American giants such as Apple are all coming out as bullish on the Chinese market. That said at a macro level it is getting harder and harder to stabilise the Chinese economy. Each blip has ramifications across the creaking world economy. All of which is denting global investors’ confidence. Whatever happens, crowdfunding looks certain to weather the storm. Occasional rain. Moderate or great.
And that completes the shipping forecast.
17 March 2023
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