Slow Asian Markets Growth Could Impact Global Equities

January 14, 2019
913 Views

A strong opening to the year is exactly what the market needed, especially in terms of creating confidence for smaller private investors. However, this week could be quite different, especially if Asian markets on Monday are anything to go by.

The U.S. stock market performed surprisingly well in the last week of trading, helping to make the best start to a year since 2006. The NASDAQ is now up 5.07% year to date, the Dow Jones Industrial Average is up 2.87%, and the S&P 500 is up 3.57%.

Asian Markets Down on Monday

At the close of markets on Monday, Hong Kong’s Hang Seng index was down -1.38%, the Shanghai Composite was down -0.71%, and the Korean KOSPI was down -0.53%. The Japanese Nikkei was the only major outlier, growing 0.97% during Monday trading.

Leading the selloffs was news that Chinese exports are slowing. China released market data during the weekend, revealing that exports fell 1.4% during December. The export slowdown has been attributed to low prices for commodities like iron ore and oil. Global economic slowdown also plays a part, with some key trade partners buying less as their own economies slow.

China’s currency has dropped in value in recent weeks, which could help to increase exports in January and throughout the first quarter.

Although exports slowed, there are still positive signs. Iris Pang, an economist from ING, noted that “For the full year, [Chinese] exports and imports rose by 9.9% and 15.8% in 2018 respectively, which resulted in an annual trade surplus of $351.8 billion. This was down from $509.7 billion in 2017, due to faster growth of imports relative to exports. The 31% decline in the trade balance also implies that China’s consumption growth was reasonably solid in 2018.”

While some investors might be quick to attribute U.S. tariffs to China’s lack of performance, the reality is that they were probably not as significant as commodity prices and a cooling global economy.

Why do Asian Stocks Matter for U.S. Investors?

International stocks are all closely interlinked. The world’s most valuable companies rely on international trade for profits and growth. China is especially important. It is the world’s second largest economy and the largest trading partner of the United States (when considering both imports and exports).

Low confidence in Asian markets often has a knock-on effect for U.S. counterparts. Stocks could start slower this week as traders come to terms with reduced Chinese performance.

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