Emerging Markets Cap Week of Selling Everything With China Link

Investors hammered Chinese assets and those of developing nations relying on its sustained growth a day after US President Joe Biden described the country’s economic woes as a “ticking time bomb.”

Chinese technology stocks traded in Hong Kong capped their worst week since June 23, with Friday’s selloff spilling over to equity markets in South Africa and the Philippines, which derive a fifth of their export revenues from the world’s second-biggest economy. Both stock and currency benchmarks for the wider emerging world are headed for a second week of losses.

Underlying the rapid deterioration of sentiment this week on China was not only worsening data — deflation, trade contraction and slowing credit — but also signs of financial distress. The concern is growing about cracks beginning to show in a $9 trillion debt market to fund local government spending, while what was until recently the country’s largest property developer by sales became a penny stock after missing debt payments.

High Yield Appeal Carries the Day

On top of everything, regulatory risk has returned, as the country acts to revamp its rules for overseeing hedge funds.

The sentiment was kinder toward emerging markets less directly exposed to China’s travails as investors responded to Thursday’s tame US core-inflation report.