While FANGs cratered in US markets, the turmoil in tech stocks has spread to AsiaPac with Hong Kong down hard as TATS tumble to one-month lows at the open…
Asia’s “FANG” equivalent – accounting for 16% of MSCI Emerging Market Stock index is TATS – Taiwan Semi, Alibaba, Tecent, and Samsung…
All four names are down notably in the last week…
Following the biggest tumble in South Korea Industrial Production (and the first rate hike by Bank of Korea in 6 years), it appears there are no dip-buyers yet. KOSPI is down at one-month lows…
All the major China indices are opening lower…
As Blomberg strategist Garfield Reynolds warns, China’s deleveraging drive toward slower, steadier growth represents a major risk for markets, even if the transition is managed smoothly.
The key concern isn’t some sort of general meltdown such as a chain reaction of defaults, yield spikes, stock routs and economic turmoil.
While that’s possible, the strength of China’s economy and Xi Jinping’s enhanced political grip make it extremely unlikely.
The greater danger is that the program succeeds, but that markets are way too optimistic about the world’s capacity to cope with a slower-growing China .
Investors should face up to the prospect that an engineered slowdown can be as disruptive as the spontaneously created, burst-bubble variety
One warning sign is the way mainland China’s equities have underperformed Hong Kong and the broader Asia-Pacific index, despite the country being the region’s engine of growth.
That suggests that the rest of the region may suffer a higher- beta correction even if the deleveraging campaign doesn’t take too much out of Shanghai and Shenzhen shares.
As the biggest producer and consumer of most of the major industrial metals, China has regularly caused market ructions either through the vagaries of collateralized lending or through direct intervention via shutdowns or output curbs.
Aluminum is the latest poster child for the latter. It has slumped after the government’s curbs didn’t match the draconian expectations that spurred smelters to boost output earlier in the year.
Industrial metals broadly have had a strong 2017 and are the only sector keeping the Bloomberg Commodity Index anywhere close to breaking even this year. Subindexes for energy and agriculture are a long way under water. Any further reversal for base metals will throw a big question mark over the robust-global-growth-lifts-all- boats hypothesis.
Whatever the goals may be, China is working to stop growth from either overheating or from creating too much environmental or societal pollution.
And it’s doing so in pursuit of an agenda that Xi — the most powerful Chinese leader in decades — has just made the cornerstone of his legacy. So the willingness to tolerate collateral damage shouldn’t be underestimated.
The optimistic scenario that a steadier China will be better for all relies on trusting that Xi’s success in consolidating power will translate into success in guiding the economy. And that the path he chooses will end up leading to a stronger global outlook.
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