Emerging Markets Can't Evade a China Slowdown
Expect any turbulence in the nation’s financial markets to be transmitted across the developing world.
China is having a bigger influence over the direction of emerging markets.
Photographer: Wang Zhao/AFP
U.S. measures to confront China on trade are shifting from tariffs to imposing restrictions on the activities of Chinese firms, which will have adverse consequences not only for the yuan but emerging markets overall.
With China accounting for 40% of the gross domestic product in developing economies, investors should expect the yuan’s recent weakness to accelerate as Chinese savers seek to hedge their risk by switching to dollar-denominated investments. Despite efforts by the central bank to stem the fall, the currency is likely to depreciate beyond the closely watched threshold of 7 per dollar at which the currency last traded in April 2007. This would have adverse implications for both China’s debt as well as the economy’s rate of growth.