How troubles in China are affecting emerging markets
Emerging markets (EEM, EMXC) are trending down on the first trading day of 2024 as Chinese markets have had one of its worst starts to a year since 2019. Last month, China injected a stimulus of $50 billion into banks hoping to send some momentum into its economy.
Yahoo Finance's Jared Blikre joins the Live show to discuss what is going on with Chinese markets and how emerging markets could play out going forward.
For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.
Video Transcript
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- Well, emerging markets are taking a hit to kick off 2024, as economic concerns led China stocks to have the worst opening to their year since 2019. Yahoo Finance's Jared Blikre is standing by with the details. Jared, what's going on?
JARED BLIKRE: Maddy, inauspicious start to the year. You can see I have two ETFs here. One is the iShares EM ETF, that's down almost 1%. And then I have it without China, and that's down a little bit less about 8/10 of a percent. One day does not a trend make, but this has been the trend over the last year, which is X-China the emerging markets sphere, has been outperforming that with China.
And if you're wondering here, well and saying, China is probably one of the biggest countries in the world. In fact, it's the second biggest, first biggest by certain metrics, so should it be classified as an emerging market? 20 years ago it was a definite yes. But today, in the air. But nevertheless, that's what we're working with.
So in purple here we have the emerging markets ETF, and that it contains China. And you can really see the divergence. It started here around the internet bank panic, around March, and that was also the time when it was becoming very apparent that China was not going to have the reopening that everybody was hoping for.
And you can see over the last five years, some of the peaks and the valleys have been a little bit different here, but X-China has definitely outperformed up 19% versus 1.69%. And let me just show you the global stock market indices so you can see how the entire world fits into this. At the very top here, this is over the last year, this is the NASDAQ up 41%. Then the Nikkei, that's up 28%. Brazil's Bovespa, that's up 25%. And then in the US, we have the S&P 500, 23%.
Now, the emerging markets X-China is 15.8%, so that's in the middle. And then emerging markets with China that's 5.1%. And you take a look at China by itself the, excuse me, the Hang Seng down 15.1% right here, and the Shanghai Composite down 4%. There is a lot of different dynamics at play. But for China's stocks to bounce back this year, it's going to require more targeted stimulus. And the problem with all that stimulus is it encourages capital flight out of the country, that has to do with the UN. People don't want to hold something if it's a devaluing asset.
So these currency maps, this is the US dollar versus a bunch of other currencies out in the world. And US dollar has gained 358% versus the Argentine peso. That's an extreme example. Hyperinflation, or at least on the verge of that over there. And then at the opposite end the US dollar has lost about 12 and one half percent to the Mexican peso. And then you take a look at Brazil, it was down 7.4, the US dollar was down 7.4%.
These are economies that are actually running somewhat tight monetary policies relative to their economies. And here's China. This is a pretty low figure. The US dollar only gained 3.5%. That means the Chinese Yuan only lost 3.5% over the last year. But this right here, 15-year high. So if we keep going higher there, if the Yuan keeps weakening, that's going to pose some structural problems for the Chinese government.
