With today’s -3.82 percent crash in the NASDAQ Composite, the predominately tech index is at its lowest level since last October. With US tech companies invested heavily and raking in huge China sales, NASDAQ Composite prices are closely tracking China’s stock prices.
The Tech stock Fab Five — Netflix Inc., Facebook Inc., Amazon.com Inc., Google Inc., and Apple Inc. — lost $97 billion in market value on Thursday and Friday as the Nasdaq Composite lost 7 percent in its worst crash since 2008.
With the Dow Jones Industrial Average opening down a near record -1089 points, the “Fab” got whacked, falling by $128 billion in the first minute of trading. Netflix tanked -14.6 percent; Facebook plunged -11.8 percent; Amazon was down -6.18 percent; Google fell -6.58 percent; and Apple dropped 10.06 percent.
The selling pressure was so intense on Monday that stocks and exchange-traded funds were automatic halted under the exchanges’ “shock absorber” rules more than 1,200 times, according to NASDAQ.
Sejuti Banerjea, Deputy Manager at Zacks Investment Research, tried to be a cheerleader for tech stocks by commenting his in blog post, “The pessimism may not be long-lived, however, because these companies generally source a ton of components from China as well, so the cost of inputs is down following the devaluation.”
Breitbart News agrees with Zack that China’s 3 percent devaluation will help tech companies buy some components from the “Red Dragon” at lower costs. But we warned on August 14 that China is so uncompetitive in costs, they would need another -20 percent devaluation to maintain current domestic employment levels.
Major currency devaluations also have nasty downsides. A devalued Chinese yuan currency means workers in China get an immediate pay cut and imports cost more. But the devaluations also causes currency flight.
Breitbart estimated on August 14 that each -10 percent devaluation in China will cause at least $400 billion in capital flight as international investors, corporations and locals try to protect their wealth by pulling out cash.
Over the weekend, Nomura Securities cautioned investors that with China “ditching its currency peg to the US dollar,” about -$90 billion in foreign reserves “left China in July” and close to -$100 billion had left in the first three weeks of August. Nomura stated that the currency flight was happening despite draconian use of anti-terrorism and money-laundering laws by the Chinese authorities to “curb illicit flows.”
The Fab Five will be huge losers if there is a major Chinese devaluation. They collectively have over $100 billion invested in China and are expecting to sell about $150 billion of products in China over the next year. A devaluation would be a direct hit to the Fab’s investments and make their products much more expensive in China.
Chinese stocks were down about -4 percent last night and NASDAQ Composite Index futures are down by about the same amount in overnight trading.
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