Advertisement
US-China trade war
CommentUnited States
Hannah Anderson
Hannah Anderson

Macroscope | As the US-China trade war rages on, investors must not lose sight of central banks and economic fundamentals

Hannah Anderson says news about interest rates and economic growth seems to get lost in the rapidly moving news cycle but when it comes to emerging markets, central banks are the players to watch

Reading Time:3 minutes
Why you can trust SCMP
0
An investor sits in front of trading boards at a private stock market gallery in Kuala Lumpur, Malaysia, on September 13. Photo: AP
Hannah Anderson

Markets are fickle by nature – what captures investor attention one day doesn’t even make the top 10 list of most-important items to watch the next. These short attention spans can make it tough to figure out what precisely is behind any day’s moves. It also makes it difficult to tell how a shift in the fundamentals will affect markets beyond investors’ reactions to the initial news – by the time a change in fundamentals actually alters market conditions, attentions have moved on.

I experienced a bit of whiplash trying to understand what was driving emerging markets over the past week. Fundamentally, interest rates and growth outlooks have shifted a great deal in recent months. But headlines were overtaken by news about trade and investors seem to have forgotten about everything they were paying attention to previously.
On the one hand, the latest developments in the US-China trade war do merit attention. Slowing global trade, a potential result of the US-imposed higher tariffs, is a negative for emerging markets. Increasingly, emerging markets find themselves trading in line with expectations for China’s economic cycle and so any slowing growth in China due to a more challenging export environment will be felt more broadly too.

On the other hand, markets have been rightly focused on central banks’ efforts to shore up confidence in local assets for much of the summer. In an environment of rising worries about external vulnerabilities in emerging markets, investors should have expected a good deal of central bank activity.

Additionally, gradual tightening of global liquidity raises questions about the response of emerging market assets, particularly since the overwhelmingly negative reaction of emerging markets to even the mere threat of higher rates during the “taper tantrum” is still fresh in investors’ minds.

Watch: The origins and impact of the US-China trade war

Advertisement