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If in doubt over the past 10 years, it makes sense to blame China. Since 2011, the biggest downturn in the equity bull market has occurred when China terrified investors with poorly managed renminbi devaluations in 2015 and early 2016.
Since January, global stocks have experienced their worst stagnation ever since. This is partly a clbadic correction after stocks have become significantly overvalued.
But it is also popular to blame the drama on tariffs, which dominated the economic news for weeks. I think we should be more concerned about internal developments in China.
The S & P 500 is hard to distinguish from the MSCI index of the 100 most developed global stocks exposed to China – which includes a number of technical names, but which should surely be the most affected in a trade dispute between the United States and China. Both are up nearly 30 percent for the year up to now. Meanwhile, China's Chinese A shares have fallen, falling 27% since a peak in early January.
This clearly suggests that events in China, once again, are moving markets. Specifically, China's monetary policy is designed to curb the excessive credit that followed the crisis. This in the process threatens to curb Chinese economic growth, as well as halo growth prospects of economies and industrial sectors that depend on China. The price of copper, for example, has dropped 17% in the last month.
To quote Hayden Briscoe of UBS: "Focusing on trade issues does not take into account what really affects the global economy, and for that one must see how China conducts monetary policy. "
A positive side of President Xi Jinping The growing power is that he is more apt to take unpopular measures in the short term, which means "crackdown on parallel banking, control of wealth management products, reduction local government debt and limits on home loans ". .
Money supply growth in the M2 declined and investment in fixed badets, which has traditionally been the backbone of the modern Chinese economy, has steadily slowed. As Mr. Briscoe said, "this policy has a direct impact on the national economy and translates into a national slowdown. becoming obvious. "Or at least they would be obvious, was not for the noise created by tariffs.
Meanwhile, US stocks had, at the beginning of the week, recovered their highest level since the beginning of the month by February before their setback Wednesday, US stocks have been steadily beating the rest of the world since 2010, but the past three months have been a breathtaking one, with the S & P 500 surpbading the rest of the world by more than 10 percentage points. The outperformance of the United States during this period, as trade war discussions intensified, is one of its greatest draws of the decade. obvious impact.
Why would this be? The clearest explanation is a "flight to safety", or perhaps a "flight to quality." The purchase of coupons US Treasury was enough to reduce bond yields s at 10 years below 2.9%, which supports stocks.
Optimism on US earnings, with the second quarter earnings period, is exceptionally high and encourages stock managers to redeploy to the United States.
Another explanation would be that investors are waiting for a trade war, that its president still believes it is "easy to win".
This could be dangerous. As Commerzbank says in a note, some argue that China will "lose" because it exports more goods to the United States than the other way around. However, he points out that "Chinese leaders have already promised to support companies affected by US tariffs." Both the government and the central bank have the ability to relieve business pain. Given the various management tools available to Beijing, it can be badumed that the government will best cushion the real economic effects. The central bank has also signaled its willingness in this regard.
Things look a bit different on the American side, where President Trump has threatened to take further sanctions against any American company that moves its production abroad because of tariffs. "In this context, there is a risk of relatively larger distortions and redistributions in the US economy which will of course result in adjustment costs," said Commerzbank
. to markets everywhere. But for the moment, the global market difficulties seem to be due to Xi Jinping's cautious actions, not to Mr. Trump's reckless actions.
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