Emerging markets sell off in the second quarter

Trade tensions, macro concerns and a strong US dollar add volatility and possible opportunity

Time to read: 3 min

By any measure, emerging markets (EMs), as represented by the MSCI Emerging Markets Index, had a tough second quarter, dropping 8.7%1 in US dollar terms and significantly trailing developed markets. The underperformance was mainly driven by macro concerns, trade tensions and election uncertainties. Taken together, these had a negative impact on consumer and business confidence, as well as growth forecasts. However, while we don’t expect a quick resolution to these issues, the Invesco International and Global Growth team continues to find attractive EM opportunities through our bottom-up Earnings, Quality and Valuation (EQV) approach.

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Examining China’s new era of macro policies

Tighter regulation, looser liquidity and fiscal consolidation are likely the new features of China’s macro policies

Time to read: 3 min

China’s macro policies have entered a new phase following the National People’s Congress meeting held in March 2018. Compared to the past few years, we at Invesco Fixed Income think China’s macro policies will feature tighter regulation, looser liquidity and fiscal consolidation. As previously communicated by President Xi Jinping and his administration, China is:

  • Changing its focus from “quantity” to “quality” of economic growth
  • Seeking to reduce leverage, lower financing costs and strengthen the manufacturing sector
  • Seeking to reduce major economic risks, especially those related to the financial sector and local government indebtedness

2018 policy objectives

The central government’s 2018 macro objectives are

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China: SOE reform is making good progress

How could positive developments in SOE reform benefit the Chinese economy — and investors?

Time to read: 6 min

2018 marks the 40th anniversary of China’s “reform and opening-up” program. As an integral part of the Chinese economy, the state sector has undergone tremendous transformation over the decades, and state-owned enterprise (SOE) reforms have been closely scrutinized by the investment community. After all, inefficient SOEs, which we believe are generally highly geared and less profitable, represent a large part of China’s debt problem and hinder productivity growth. Without reform measures, many SOEs will remain unprofitable and might default on their liabilities, putting strains on the financial system and unsettling the economy.

While disappointments in this area have been common, we have seen some positive developments recently. SOEs have

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US-China trade tension: Is it a concern for Asian equity markets?

What could newly proposed tariffs between the US and China mean for Asian markets?

Time to read: 3 min

On March 22, President Donald Trump signed a memorandum that would impose 25% tariffs on up to $60 billion in annual imports from China, relating to intellectual property practices under Section 301 of the 1974 Trade Act. The proposed tariffs target 1,300 product categories concentrated in aerospace, information and communication technology as well as machinery, and a detailed list will be unveiled within 15 days for public comments. Earlier this year, the US announced import tariffs on steel and aluminum due to national security concerns under Section 232, as well as tariffs on washing machines and solar panels.

In reaction to the newly proposed tariffs, the Ministry of Commerce in China responded by announcing similar tariffs on around $3 billion of US imports ranging from fresh fruits to steel pipes.

China’s trade surplus with the US widened

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