China has prompted hopes of a broader economic boost to the region. China is a big consumer of hard commodities and this should help support Asian and emerging stock markets.
While China’s re-opening has been grabbing all of the headlines at the start of the year, an old familiar story is still lurking in the background.
Tensions between the US and China aren’t expected to be resolved anytime soon. The jostling of these mega-economies has wide ranging implications for economies globally. Any attempts to ‘decouple’ completely will be difficult given the impact on businesses and difficulty in unwinding complex supply chains.
Market Perfomance
Over the year to the end of January 2023, the emerging stock market has fallen 2.73%*, while the Asia Pacific ex Japan market delivered a small gain of 2.69%. This compares with a gain of 1.41% for the broader global stock market. As always past performance isn’t a guide to future returns.
Performance of the underlying markets has been mixed though. Singapore has been the strongest of the main markets. On the other hand, China has been the weakest with the country’s citizens having their freedoms restricted for most of the year.
While Asian and emerging countries are often lumped together, they can behave quite differently. The performance of these markets over the past year shows this.
Emerging markets have faced problems, and uncertainty could linger. But this isn’t new. These markets are constantly going through transition, and volatility is a natural part of developing economically.
Growth And Interest Rates
China’s re-opening aside, there are a few other key issues that look set to sway the fortunes of Asian and emerging markets in 2023.
As the world’s most influential central bank, what the US Federal Reserve (Fed) do to control inflation has important knock-on effects for these markets. Rising US interest rates are often thought to be bad news for emerging market economies. That’s because they can increase debt burdens, trigger capital outflows away from their economies to the US, and generally cause a tightening of financial conditions.
However, with signs that inflation might have peaked in the US, assuming no surprises, the worst of this pressure could be over.
The path of global economic growth is important too. The more cyclical markets in the region are more likely to come unstuck if the anticipated global slowdown sets in. Cyclical companies’ goods and services are in demand when the economy is doing well, but have tended to see revenues fall when the economy falls on hard times.
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This article is for informational purpose only. It does not constitute finacial, tax or legal advice, nor is it a recommendation to buy, sell or hold any investment. Past performance is not a guide to the future, investments rise and fall so investors could make a loss. No view is given on the present, future value or price of any investment and investors should form their own view on any proposed investment.