China Slowdown Hurt EM More Than Fed Taper

That’s why attention turns from America’s rock to China’s hard place – or maybe China’s ‘hard landing’ more pertinently.

“Emerging markets should be much more concerned about the ‘China taper’ than the Fed taper,” said Crossborder Capital Managing Director Mike Howell.

While long-standing China slowdown fears eased somewhat late last year, business surveys in January indicate another stall as authorities push on toward a more consumption-driven model and aim to tame the recent credit boom by squeezing the lending activities of its ‘shadow banks’.

Apart from monthly data from Beijing, a halving last month of world shipping prices .BADI – often seen as a play on Chinese demand – reveals some considerable alarm on that front.

And to the extent that Chinese sovereign credit default swaps are any proxy for systemic and debt-related concerns, their resurgence over the past two months is also revealing.

So while the fall in U.S. Treasury yields this year so far could act as some automatic stabilizer of emerging markets, the return of China angst pops up to replace it.

“The two big threats facing EM have turned upside down,” said Citi strategist David Lubin, adding that the dance between both influences could end up depressing world growth at the margins and make it increasingly difficult for many developing countries to export their way out of trouble.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza