The Asian Financial Cycle (Part II) … After The Latest Round Of Rate Rises, Could The World Economy Slow?

With investor sentiment elevated and markets looking skittish, many fear that these jitters could be a precursor to future economic weakness, particularly if China tightens policy in 2018. Indeed, some have suggested this squeeze is already underway. China plainly matters a lot, but we do not see the PBoC tightening this year. Rather we expect policy to remain accommodative.  This will underpin a rising Asian Liquidity Cycle. Liquidity drives economies: this report argues that investors are still ignoring the huge scope that Asian and EM economies have to ‘catch up’ with the West. Any broad sell-off should be welcomed as an opportunity to buy back into these markets at lower levels.