Bruised emerging markets brace for reality of China’s trade pain
China is poised to provide the latest signpost for emerging markets wounded by a week in which traders fretted over the prospect of slowing growth in the world’s biggest economies.
With investors still worried about the fallout from the trade war, China will this week announce industrial production and retail sales for February. Last week, Citigroup Inc.’s emerging market economic surprise index fell the most in four years, while the average extra yield investors demand to hold the foreign debt of developing nations, as measured by a JPMorgan Chase & Co. gauge, had its largest weekly jump since November as China cut its 2019 growth target and US jobs data showed the weakest hiring in more than a year.
“China has fast become our main concern and we will also be analysing the usual economic releases for signs the economy may be reaching a bottom,” said Anders Faergemann, a fund manager at PineBridge Investments in London that oversees $90 billion in assets.
Risk assets can still enjoy the tailwinds of a dovish-turning Federal Reserve and further stimulus from China, much as they did in 2016, when emerging markets embarked on an $8 trillion bull run, Faergemann said. Prices may also get a lift after People’s Bank of China Governor Yi Gang said at the weekend that China and the US have reached consensus on many “crucial” issues and and have discussed the need to observe the “autonomy” of each other’s monetary policy.
All of which will test just how crowded the emerging-market trade has become.
“We likely need to see some position reduction and more signs of a pick-up in European growth before becoming constructive again on EM,” Morgan Stanley analysts including London-based James Lord said in a note last week. “At the moment, it is a matter of being patient and waiting for some additional risk premia to be built into EM assets again.”
Data deluge
China’s credit growth slowed in February after a seasonal surge the previous month, with the net development in the first two months of the year signaling continued recovery in credit supply, according to figures released on Sunday.
Source: moneyweb.co.za