Emerging markets (EEM, EMXC) are trending lower on the first trading day of 2024 as the Chinese market has had its worst start since 2019. Last month, China injected $50 billion in stimulus into banks in hopes of bringing some momentum. to that economy.
Yahoo Finance’s Jared Blikre joins the live show to discuss what’s happening in the Chinese market and how emerging markets will develop in the future.
For more expert insights and the latest market trends, click here to watch the full episode of Yahoo Finance Live.
video transcript
[AUDIO LOGO]
– Well, emerging markets are taking a hit at the start of 2024, as economic concerns led Chinese stocks to their worst start to the year since 2019. Yahoo Finance’s Jared Blikre awaits details. Jared, what’s going on?
Jared Breichle: Maddie, this year has gotten off to an inauspicious start. Here you can see that there are two ETFs. One is the iShares Emerging Markets ETF, which is down almost 1%. And if you exclude China, it’s down about 8/10 percent. Trends don’t just form overnight, but this has been the trend over the last year, with X-China emerging markets outperforming China.
If you are wondering here, China is probably one of the largest countries in the world. In fact, by certain metrics it is the second largest market and the largest, so should it be classified as an emerging market? Twenty years ago it was a clear yes. But today it’s up in the sky. But nevertheless, that’s what we’re working on.
What you see here in purple is the Emerging Markets ETF, which includes China. And you can actually see the divergence. It started around March when the internet banking panic broke out, but also around the time it became very clear that China wasn’t going to be able to restart the economy that everyone had hoped for.
While we can see some differences in some of the peaks and troughs over the past five years, X-China has definitely outperformed with an increase of 19% vs. 1.69%. And so that you can see how this applies to the world as a whole, let me show you the world stock market index. The top thing here is this was last year and the Nasdaq was up his 41%. Since then, the Nikkei average has risen 28%. Brazil’s Bovespa rose 25%. And the US has the S&P 500, which is 23%.
Now, the emerging market X-China is at 15.8%, so it’s in the middle. Emerging markets, including China, account for 5.1%. And look at China itself. Excuse me, but the Hang Seng Index fell by 15.1% and the Shanghai Composite Index fell by 4%. There are different dynamics at play. But more targeted stimulus will be needed for Chinese stocks to recover this year. And the problem with these economic stimulus packages is that they encourage capital flight out of the country, and this has something to do with the United Nations. If an asset is going to decline in value, people won’t want to own it.
These currency maps contrast the US dollar with many other currencies around the world. And the US dollar appreciated 358% against the Argentine peso. That’s an extreme example. Hyperinflation, or at least one step closer to it. And on the other side, the US dollar depreciated by about 12.5 percent against the Mexican peso. And if you look at Brazil, Brazil is down her $7.4 and the US dollar is down her 7.4%.
These countries actually have somewhat tighter monetary policies than their own economies. And this is China. This is a fairly low number. The US dollar rose only 3.5%. This means that the Chinese yuan only depreciated by 3.5% over the past year. But here, this is a 15-year high. So if we continue to appreciate and the renminbi continues to decline, it will cause some structural problems for the Chinese government.