Equity markets suffered a difficult start in 2016.  Global share prices fell by 5% in the first week of trading due to concerns about China. The Shanghai stock market closed twice recently after trading limits were breached. However, the stock market is still in bubble territory – it has risen by 150% over the eighteen months to last June.

There is very little foreign money tied up in Chinese shares so this should not cause instability in global markets. There is very little link between the stock market and the economy. The 150% rise occurred as the economy was slowing.

The manipulation of the renminbi through a series of unannounced “depreciations” against the US dollar recently has sparked fears of a currency war. This occurred last August when the rate against the dollar was adjusted several times, prompting concerns about the underlying health of the economy. However, the total reduction in the currency is about 5% if the August adjustments are included. Sterling has moved by even more against the dollar over the same period.

The continuous interventions by the Bank of China are in danger of sapping confidence and of nervous investors blowing it out of proportion.

There is still positive news in the rest of the world. Equity valuations do not look overvalued, based on the past 20 years. Lower oil prices provide a boost for consumers allowing consumption to rise without having to borrow.

In Europe, manufacturing is improving, helped by a weaker euro. Continuing low levels of inflation should ensure that the central bank will carry on stimulating the economy. Lower energy prices are providing a boost to Eurozone household budgets. In the UK, the economy is expected to expand by over 2% this year as consumer confidence remaining strong, reflected in the record level of new car sales for 2015.

Consumer spending is not out of control and confidence remains positive as disposable incomes improve. There is evidence that business investment is picking up, particularly in the US, all suggesting we should not have any reason to panic.