Global stock markets plunged on Monday, with Japan's Nikkei index experiencing its worst day in 37 years, as investors fear a possible US recession and dump risky assets. The Topix index fell 12.2%, the biggest sell-off since "Black Monday" in October 1987, wiping out its gains for the year. On Wall Street, the tech-heavy Nasdaq fell 6.3% in early trading, heading for its worst day since the early days of the Covid-19 pandemic, while the S&P 500 lost 4.1% . Nvidia fell 15%, while Apple shares were down 9% and Tesla was down 11%. The Vix index of expected US stock market volatility, known as Wall Street's "fear index", jumped above 65 points on Monday, the highest level since 2020.
The global meltdown was exacerbated by the dismantling of the so-called yen carry trade, in which traders had taken advantage of Japan's low interest rates to borrow in yen and buy risky assets. The yen has strengthened about 13% since mid-July, boosted by the Bank of Japan's interest rate hike last week, including a 2.9% gain to ¥142.31 against the dollar on Monday. Futures trading on Topix and Nikkei was suspended during the afternoon session as the selling frenzy continued into the close, reaching "circuit breaker" levels that automatically halt trading. In South Korea, similar measures were activated for the first time in four years. South Korea's Kospi index fell 8.8%, while Australia's S&P/ASX fell 2.5%. India's Sensex lost 2.7%. In Europe, the benchmark Stoxx Europe 600 index fell 3.1%.
The global turbulence spread to the cryptocurrency market, with the price of Bitcoin falling 20% to $49,812, while the price of Ether, another cryptocurrency, fell 27% to $2,186. These significant fluctuations can affect the real estate market in Paraguay in several ways.
The decline in international stock markets may lead foreign investors to be more cautious with their investments, including the real estate sector in Paraguay. Additionally, investors may withdraw capital from real estate investments to cover losses in other markets, thereby reducing the liquidity available in the Paraguayan market. The fear of a recession in the United States and other important markets can have a cascading effect, affecting global economic growth and, therefore, the Paraguayan economy. A weaker global economy may translate into lower demand for goods and services exported by Paraguay, which would negatively affect employment and people's ability to invest in real estate.
The drop in the value of cryptocurrencies such as Bitcoin and Ethereum may affect investors who use these assets to buy property. Instability in financial markets can reduce consumer confidence, which in turn could cause people to postpone purchasing property. Banks and financial institutions could tighten conditions for granting mortgage loans due to a riskier economic environment, making it more difficult to access financing for home purchases. If demand for properties decreases due to economic uncertainty, property prices may stabilize or even decline. A Deloitte study shows that financial crises can lead to a 10-15% drop in property prices.
However, there are also positive effects. Investors looking to diversify their portfolios away from the volatile stock and cryptocurrency markets may find the Paraguayan real estate market a more stable and secure option. According to a CBRE study, 68% of global investors are diversifying their portfolios in response to financial market volatility. Volatility in other assets may cause investors to refocus on real estate, traditionally considered a safer long-term investment. If the Paraguayan real estate market is perceived as more stable compared to international markets, it could attract investors seeking refuge in times of uncertainty.
Considering the good economic performance of Paraguay during the pandemic, where it was the country with the least economic contraction in all of Latin America and the Caribbean after the global health crisis, the policies adopted by the government proved to be successful in boosting economic growth and strengthening macroeconomic stability. . The average growth of 5.14% recorded in the five-year period 2006-2010 was vastly higher than in previous periods, despite the effects of the global economic crisis and adverse climatic factors that affected the economy in 2009. The global economic crisis, which had its epicenter at the end of 2008, negatively impacted Paraguay in 2009, the year in which, in addition to external disturbances, a severe drought severely affected agricultural production, resulting in a 4% drop in GDP. However, in subsequent years, especially in 2010, the Paraguayan economy recorded positive results, with a GDP growth rate of more than 13%, the highest in MERCOSUR and one of the highest in the world in that year. In addition, Paraguay reached investment grade (Baa3) according to the rating agency Moody's, reinforcing the perception of stability and security for investors.
This information is relevant to the current context of volatility in global markets because it highlights the resilience of the Paraguayan economy in the face of previous international economic crises. Paraguay's ability to maintain macroeconomic stability and achieve significant growth during periods of global economic adversity demonstrates that the country can be an attractive haven for investors in times of uncertainty. Moody's investment grade rating further underscores this stability, suggesting that investments in the Paraguayan real estate market can offer security and growth potential that investors seek amid global financial turbulence.
Falling prices in other markets could keep property prices in Paraguay more attractive, attracting both local and foreign buyers. An ECLAC report shows that foreign direct investment in real estate increased by 5% in Latin America in 2023, which could indicate a positive trend for Paraguay. Investors who made significant profits before the crash may choose to reinvest those profits in real estate. Central banks can reduce interest rates to stimulate the economy, which in turn could make mortgage loans more affordable and stimulate property purchases. The real estate market can show resilience in times of economic crisis, as the demand for housing and the need for commercial properties persists.
The government could implement stimulus policies to support the real estate sector, such as tax incentives or construction support programs. Uncertainty in financial markets may lead to increased demand for safe haven real estate, increasing activity in the market. People may choose to invest in real estate properties instead of keeping their money in volatile financial assets. Companies in the real estate sector can innovate and adapt, offering products and services that attract investors in a changing environment. Investment in infrastructure and urban development can continue, creating additional opportunities in the real estate market.
To mitigate the negative effects and take advantage of the opportunities arising from volatility in financial markets, real estate market players in Paraguay can take several proactive measures. These include developing risk management plans that consider contingency scenarios for different economic situations, conducting regular market research to identify trends and changes in demand, and diversifying their portfolios with a mix of residential, commercial and industrial properties to reduce risks.
Additionally, it is crucial to use advanced technology and digital tools to improve the customer experience and optimize the sales and rental processes. Work with banks and financial entities to offer attractive and accessible financing options for buyers and investors.
Continuous training of staff on market issues, technology, customer service and risk management is essential. Likewise, it is advisable to create campaigns to encourage local investors to invest in the national real estate market, highlighting stability and growth opportunities. Finally, showing the world the opportunities present in the country reinforces its attractiveness as a safe and profitable investment destination.
Volatility in international financial markets and cryptocurrencies can present both challenges and opportunities for the real estate market in Paraguay. By proactively adapting to these conditions, market players can mitigate negative effects and take advantage of opportunities for growth and stability. It is important to maintain constant monitoring of how these dynamics develop to adjust strategies and decisions in real time, thus ensuring the resilience and competitiveness of the real estate sector in the country.