Global market crash: Silver linings in an otherwise gloomy cloud

Trillions of dollars have been wiped off the value of global stock markets in the past 24 hours, but the message from many in the industry is "don’t panic".

Yesterday saw some of the biggest drops on Asian stocks markets since March 2011, a sharp reaction to a slowing Chinese economy.

But while the world’s second largest economy is showing signs of a significant slowdown, consumer spending, particularly among China’s growing middle class, remains strong.

“We shouldn’t lose confidence in the economic growth prospects of China and the globe,” commentary from a state-run Economic Information Daily, said today.

“The global stock plunge was more likely caused by emotions rather than fundamentals.”

Fundamentals are not as bad as many of today's headlines might suggest.

Apple CEO Tim Cook was among the world's top CEO to reassure investors that its business in China remained strong.

In an email to CNBC, Cook said Apple's business was doing just fine.

"I get updates on our performance in China every day...and I can tell you that we have continued to experience strong growth for our business in China through July and August," Cook wrote.

That accelerated growth has come from increased iPhone activations over the past few weeks, along with the company's App store in China having its best performance of the year over the past two weeks.

"I continue to believe that China represents an unprecedented opportunity over the long term as LTE penetration is very low and most importantly the growth of the middle class over the next several years will be huge."

On the other hand, Howard Schultz, CEO of Starbucks, asked his employees to be "very sensitive" to customers because of the stress they may be feeling over the crashing stock market.

He wrote an email to all of the company’s retail employees (known as “partners”) and managers: “Today’s financial market volatility, combined with great political uncertainty both at home and abroad, will undoubtedly have an effect on consumer confidence and perhaps even our customers’ attitudes and behavior. Our customers are likely to experience an increased level of anxiety and concern…Let’s be very sensitive to the pressures our customers may be feeling, and do everything we can to individually and collectively exceed their expectations,”

Schultz also assured the employees in the email, "our growth plans for the future of our company will not be impacted by the turmoil of the financial markets. We will positively manage through today’s challenging environment just as we have positively navigated through challenging moments in the past."

What's the impact on marketing?

Closer to home, industry players echoed the same sentiment. On the effects of the crash on marketing spends, speaking to Marketing, Sandipan Roy, regional strategy director at Isobar said: "I think it’s more of a strong correction than a crash. Typically marketing spends get affected by the stock market when there’s a overall dip in consumer spending and confidence on the one hand and company’s ability to invest, on the other."

According to Roy, there isn't much evidence to indicate if consumer spending levels would be massively impacted unless this sustains for a longish period.

However, the crash will affect confidence levels, especially in countries like China where retail investors were being encouraged by their govt to invest in the stock market. Companies that are looking to expand will also get affected, by this correction, as they would have lesser opportunity to get money. And China and Asia is full of companies wanting to expand. Tim Cook has said that there hasn’t been too much impact in China, given the iphone activation figures.

So lets just go with someone who knows his stuff. Unless this continues for a longish time, there wouldn’t be too much impact on marketing spends.

But at the same time there is a warning for marketers. Stock markets and a constant look at maximising share holder returns encourages short-termism. "If because of a correction or a crash, companies are under pressure to increase shareholder returns on a short-term basis, then that would definitely have a negative impact on marketing spends," Roy added.

Moreover, the Chinese stock market volatility itself isn’t the main issue in terms of Chinese market dynamics, although it obviously has some impact on confidence.  More important and worrying are the slowdown of GDP growth and resulting government policy such as the devaluation of the Yuan.

According to Stuart Clark, client managing partner, APAC, IPG Mediabrands, the weaker Yuan might scare some advertisers in categories such as outbound travel or luxury goods (which is already suffering from the government focus on corruption) as it affects affordability.

Conversely, companies manufacturing in China are likely to benefit from the devaluation as they become more price competitive vs foreign manufacturers – both domestically and overseas.

"We see a lot of campaigns still running as normal but with a cautious eye on the next 6 months. We haven’t seen marketers slashing budgets in response to the “flash crash” but there is definitely a sense of caution about what happens next and that is likely to be reflected in how advertisers approach commitments for the rest of the year," he added.

Clark’s views are supported by the reports released by Magna Global earlier in June which pointed to the slowing down of Chinese economy and the subsequent slowing down of ad spend growth. In 2014, China grew by +10.5% to $45.9bn, and is expected to grow by +8.1% in 2015 to reach $49.7bn. China is the second largest global advertising market behind the United States and all eyes are on the second-largest ad market on the planet.

With additional reporting from Rayana Pandey and Rezwana Manjur. 

(Photo courtesy: Shutterstock)