Consequences of a Weak China

by Michael J. Howell18. March 2014 07:36
We are currently seeing EM dragged down by three largely external forces: (1) Western and particularly US capital has restructured post-Lehman and lowered its break-even costs to such an extent that production is re-on shoring; (2) China has put on her monetary brakes fairly 'hard'. This is disrupting regional capital flows and unhinging the Asian supply-chain. This will likely be a long and not a short-term monetary squeeze, and (3) in the 1960-90 period the Yen/US$ drove the tempo of the Asian business cycle, and may be doing so again given the Yen's recent collapse. In short, American restructuring, Chinese downsizing and Japanese competitiveness are doing the damage. No mention of US tapering, lack of EM reform and/or EM economic imbalances. They are simply not the issue. Since bad news in China will get worse in te near-term tred carefully! See latest EM research report.


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