Emerging markets fall after China’s economic stagnation

The assets of the emerging markets They began the new year on a weaker note, affected by concerns about the economic stagnation of China.

MSCI Inc.’s benchmark index for developing country stocks fell for the first time in seven days, while the monetary index fell for the first time in eight. Credit default swaps that protect against payment risks between 22 sovereign issuersand they extended for a third day, the longest streak since late November.

The chinese stocks posted the worst start to a year since 2019 and the yuan saw its biggest drop since June after weak manufacturing and home sales data in the country indicated that slowing growth in the world’s second-largest economy is far from over. . The unusual acceptance by the president Xi Jinping of the economic problems of the country further affected investor confidence.

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China economy in recession

“The Purchasing Managers Index figures indicate a slowdown in China’s economic recovery in the final months of the year,” Stephen Innes, managing partner at SPI Asset Management, wrote in a note. This “will put pressure on those responsible for fiscal and monetary policies to adopt urgent measures. “China requires more than just stimulating economic activity: it needs a fundamental overhaul of the underlying growth engine.”

The latest data released showed China’s factory activity contracted in December to its lowest level in six months and the decline in home sales accelerated. Most of Asia also recorded a slowdown in new orders and production volumes during December due to lower Chinese demand.

Emerging markets had ended 2023 on a positive note, buoyed by a late recovery amid a weakening US dollar. The MSCI Emerging Markets index of stocks rose 7% last year after falling almost 5%. The exchange rate indicator registered an annual increase of 4.8%, while a Bloomberg indicator of sovereign debt in dollars rose 11%.

Moody’s downgrades China’s credit outlook to negative

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Chinese economy in recession

However, Tuesday’s actions indicated that the broader investor concerns that caused wide swings last year remain. In addition to China’s uneven economic recovery, the disparity between market expectations of the Federal Reserve’s rate cuts and the central bank’s own projections threatens to keep assets volatile.

Translated by Bárbara Briceño.

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