Selling Returns to Emerging Markets as China Rally Fades
Emerging markets were shaken by investor concerns over the US economy and the strengthening dollar, causing an equity rally led by China's stimulus plans to be short-lived.
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Posted 8/29/2023, 1:52:37 PM
yahoo.com
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Summary: The turmoil in emerging markets, including declines in bonds and stocks, unpredictable political situations in Argentina and Ecuador, and global economic factors, is causing investors to reassess the risks associated with investing in these markets.
Asian stocks, particularly Chinese markets, may find some relief after Wall Street's resilience in the face of rising bond yields, though economic data from China remains underwhelming and foreign investors continue to sell Chinese stocks.
World markets experienced some relief as the bond squeeze eased, with investors eagerly awaiting signals from the Federal Reserve conference in Jackson Hole and hopeful for a resurgence of the early-year AI craze. President Xi Jinping's attendance at the BRICS summit in South Africa also provided some positivity for China's economy.
Asian markets are expected to follow the global trend of weakness in stocks, a buoyant dollar, elevated bond yields, and souring investor sentiment, with no major catalysts to change the current market condition.
Most emerging market currencies were subdued as investors awaited the U.S. Federal Reserve chair's speech, while South Africa's rand rallied after inflation slowed and China stocks fell despite a share buyback rush.
U.S. equity markets rallied as tech stocks gained and Netflix shares rose on strong subscriber growth, while Foot Locker and oil stocks struggled; U.S. Treasury yields and the dollar fell, while cryptocurrency prices rebounded.
Emerging markets are facing challenges due to the Federal Reserve's efforts to combat inflation and China's economic slowdown.
China's attempts to stabilize its stock market through new initiatives and measures have failed as a brief rally fizzled out, reflecting concerns over the nation's economic health.
World markets remain buoyant despite the increasing possibility of another U.S. interest rate hike and the focus on U.S. employment, with China's stock markets extending their rally and bond markets stabilizing.
Global interest rate hikes, challenges in China, a stronger dollar, and political instability in Africa have impacted emerging market assets, causing stock and currency declines and property market concerns in China, while Turkey's markets have seen a boost in response to interest rate hikes, and African debt markets have experienced a significant pullback.
Asian stock markets rise on the belief that the Federal Reserve has finished raising U.S. interest rates and hopes that policy stimulus from Beijing will stabilize the Chinese economy, while trading remains thin due to a U.S. holiday.
Global stocks rise as a Chinese rebound, prompted by eased mortgage rules, boosts the country's struggling property sector. Goldman Sachs predicts more stimulus to come.
China's stock market rebound may be temporary as corporate earnings continue to decline and companies revise down their outlooks, causing concern for foreign funds and prompting Bank of America to urge caution.
Emerging market currencies are expected to struggle to recover from their losses this year due to high U.S. Treasury yields, safe-haven demand, and a slowing Chinese economy, keeping the dollar strong, according to a Reuters poll of FX analysts.
Asian shares fell and the dollar's rally stalled as the greenback weakened against most major currencies; concerns over Apple's iPhone sales in China and the expansion of a ban on iPhones in sensitive departments in China to government-backed agencies and state companies also weighed on sentiment.
India's stock market has seen a rally as strong macroeconomic fundamentals and China's economic slowdown keep foreign investors invested in Indian stocks, while a surge in retail investor interest continues to drive the market.
China's credit demand improved, deflationary pressures eased, and the yuan rallied, indicating signs of stabilization in the economy and financial markets after a sharp downturn.
Asian stock markets rose slightly as comments from central banks in China and Japan interrupted the dollar's rally, while investors awaited U.S. inflation data that could impact future Federal Reserve rate hikes.
The resilient growth of the US economy is fueling a rebound in the dollar and causing bearish investors to rethink their positions, although the currency's rally may face challenges from upcoming data and the Federal Reserve's meeting this month.
Investors may want to gain exposure to emerging markets in 2023 due to their high growth potential, the potential for diversification and offsetting of FX impacts, China's policy shifts supporting growth, the ability to compound returns through dividends, and the potential reversal of the MSCI index.
Emerging markets, particularly China, are facing challenges such as weak economic activity, real estate debt issues, regulatory environment, and market concentration, while the U.S. market is performing well; however, emerging markets outside of China, like India, are showing promise due to supply chain diversification, infrastructure investment opportunities, and a pro-business government. Other attractive markets include Taiwan, South Korea, Vietnam, the Philippines, and Indonesia.
US stocks slumped as reports of China's recovering economy caused concern, potentially impacting global stock exchanges, while the US auto workers' strike and oil price rallies also contributed to market fluctuations.
Asian markets open with a decline, primarily driven by chip- and AI-related shares, while concerns about China's economy persist, disrupting the calm ahead of several central bank meetings this week.
A stronger US dollar has a significant negative impact on emerging market economies compared to smaller advanced economies, as it decreases economic output and trade volume, worsens credit availability and capital inflows, tightens monetary policy, and leads to stock-market declines. Emerging market economies with anchored inflation expectations or flexible exchange rate regimes fare better, and global current account balances decline with a stronger dollar, reflecting a contraction in global trade. Measures such as global safety nets and macroprudential policies can help mitigate these spillover effects.