Remember China?
It’s a big country that’s somewhere near Sweden I think.
No but seriously, people have seemingly forgotten those tense mornings in the dog days of summer 2015 when the authorities in Beijing were forced to suspend trading in some stocks and buy others via the now infamous “national team” as a truly epic unwind in a half-dozen backdoor margin lending channels abruptly burst the country’s equity market miracle.
No sooner had everyone calmed down from that debacle than the PBoC devalued the yuan and threw global markets into turmoil.
After that, all anyone wanted to talk about was China’s controlled deval and the toll that effort was taking on the country’s FX reserves. Then, in December, 2015, the PBoC adopted a trade-weighted reference basket for the RMB, conveying still more depreciation, which in turn conspired with the Fed’s feeble attempt at “liftoff” to send everything into a deflationary death spiral to start 2016.
Fast forward a year to December 2016 and things went a lot smoother, but really, there was a very similar setup. China was attempting to rein in speculation via OMO tightening and the Fed was hiking again, this time into a collapsing Chinese bond market. Fortunately, everyone shrugged off the China troubles.
Well here we are in April and it’s been a blockbuster start to the year for emerging markets, which has more than a few folks wondering if the music is about to stop (see here and here, for instance).
It’s with all of the above in mind that we present the latest from Bloomberg’s Cameron Crise, who notes that if you “want a reason to sell in May, keep an eye on China.”
Via Bloomberg
Keep an Eye on China for a Reason to Sell in May
While things are looking good for global equity investors these days, they would do well to keep an eye out lest they trip over stray bricks from the wall of worry. While markets seem happy to ignore the impending budget showdown in the US, developments in China should remain a source of concern.
