Friday, February 7, 2014

Watching the 'China taper'

Chicago Tribune: - "Emerging markets should be much more concerned about the 'China taper' than the Fed taper" -  Crossborder Capital Managing Director Mike Howell.
Indeed, while the rate of US taper is modest and reasonably well defined, signs point to slower economic expansion in China. And even in the near-term there is little visibility on that country's growth. The January HSBC services PMI print this morning was quite weak. One of the explanations seems to be that services have slowed due to Beijing forcing government officials to go easy on the extravagant "entertainment" that has become so prevalent in recent years (see post). Once that is dealt with things should improve? Perhaps.
Hongbin Qu/HSBC (published by Markit): - The slower expansion of services activities in January reflected soft manufacturing growth and the impact of Beijing's latest measures to curb official extravagance. As business sentiment remains stable, we expect services growth to bounce back a little in the coming months. Yet a meaningful improvement relies on stronger growth of manufacturing sectors and the implementation of reforms to boost service sectors.

Other measures from China are consistent with slower growth as well.
Reuters: - A similar services PMI released by the China's statistics authority earlier this week showed growth in the sector sagged to a five-year trough in January as business confidence retreated to four-year lows.

Two separate PMIs for China's factories also showed manufacturing growth slipping to six-month lows in January.

Analysts polled by Reuters believe China's economy will grow 7.4 percent this year, far ahead of other major economies but still its worst performance in 24 years.
The trajectory of emerging as well as many developed economies going forward will depend on whether we see an uptick in China's economic activity after the holidays. For now the global equity markets remain skeptical.

Source: Ycharts
  • ^DJWO - Dow Jones global equity index
  •   IEMG - Core emerging markets
  •   FXI - China's large cap shares
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