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Update: Emerging Markets

By beled | November 2, 2015

Extract from the September 2015 quarterly report:

The equities of emerging markets slumped by 17.8% in terms of the US dollar as concerns about China’s slowdown and the timing of a US interest rate hike reverberated across the commodities and currencies markets. Commodity prices plunged to multi-year lows on expectations of lower demand from China, whose economy appeared to be slowing faster than expected. This weighed heavily on the equities and currencies of major commodity exporters.

Chinese equities suffered significant losses. The high valuations and clampdown on margin leverage in the mainland A-share market triggered selling pressure across all Chinese share classes, including the Hong Kong-listed H shares. The surprise technical devaluation of the renminbi (RMB) on 11 August 2015 sparked fears that a perceived slowdown in China’s growth was worse than anticipated. In a single day, 24 August 2015 which has subsequently been dubbed “Black Monday”, the Shanghai Composite Index closed down 8.5%.

China’s central bank responded to the ensuing market volatility by cutting interest rates for the fifth time since last November and lowering the bank reserve requirement ratio. A number of important reform proposals were approved. The long-awaited state-owned enterprise (“SOE”) reform plan was unveiled, setting the direction for the reform of SOEs for the next five years. The 10% sales tax on small vehicles was reduced by 50%. The down payment for first home buyers was lowered in most cities except Beijing, Shanghai, Shenzhen and Guangzhou, aiming to boost consumption in the housing market.

During Chinese President Xi Jinping’s state visit to the US in September he gained support from President Obama for the inclusion of the RMB in the IMF’s Special Drawing Rights basket of reserve currencies, assuming that certain IMF requirements are met.

China’s 13th five-year plan will be discussed in the upcoming Fifth Plenum of 18th Communist Party Congress in October.


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