Emerging markets have been the worst hit by the China market volatility.
Aly Khan Satchu, CEO of Rich Management, said “China’s data just doesn’t stack up anymore, no one believes it. That moment when markets suspends disbelief is upon us now.”
According to Satchu, this understanding is why we are seeing commodities crashing. China’s instability will particularly affect Africa as the continent’s terms of trade with China, which amount to 220 billion dollars, will move into a space where China’s exports will be cheaper and Africa’s exports into China will be more expensive.
According to Satchu, “Oil is heading back to 32 dollars 15 minimum target on WTI [West Texas Intermediate], that’s where the price was the day after [former US President] George Bush stood up on the USS carrier and said ‘Iraq is over’… that’s where we are going, it’s a falling knife now.”
Satchu said, this can only be helped if Saudi Arabia and Russia take out five million barrels a day, “…but they are not going to do it, we are going to continue downhill.”
Satchu noted that two things have happened, firstly that, Saudi Arabia is no longer the price-setter in the crude oil market. “They didn’t get that, they thought they were… it is the US that is, today. US [has been] pumping oil at record high since 1920. It is a geopolitical spear pointing at Russia putting pressure on them.”
Kenya has seen an upward review of the fuel price, to which Satchu said was “mind-boggling”. He said, Kenya needs this boost in its economy. “Lower oil prices would give us a bit of support at a time when the economy has been slowing for five quarters,” he highlighted.
Satchu said he had no explanation for the upward review.
According to Satchu, inflation should be the least of Kenya’s worries. “Oil is the game changer, our single biggest expense item on the balance sheet.”
Currently, Kenya’s trade deficit is up by 21 billion Kenyan shillings and Satchu’s sentiments are that, this a warning signal. “We will definitely see an improvement here because I can guarantee that all those hopes of oil and commodities are gone, they are a puff of smoke.”