Decoupling of stock markets
It looks like Asia (Asia ex-Japan, of course) has been heading into a cycle of rate hike these days. The Bank of Korea, South Korea's central bank, raised its policy interest rate last week by 25bp to 2.75%, third rate hike since last year. In the same week, the Bank of Thailand, Thailand's central bank, also tightened monetary policy by venturing into the fourth increase of its benchmark interest rate by 25bp to 2.25% in a year.
What everybody is now watching very closely is, however, China, the second largest economy in the world. The country raised its reserve requirement ratio by 50bp last week, the seventh in a year. Fear of economic slowdown due to the rate hike dived the Shanghai composite, a benchmark index of China's stock, to a nearly three-month low of 2677.65 on Thursday.
Will China's economy slow down so soon this year? At least for now, it seems that the world markets read it as only China's problem, not themselves.
First, let's look at how China is big in the current world economy. China's contribution to the world growth has been increasing dramatically for the last ten years. Though it plunged in 2008 because of the recession after the Lehman crisis, the country's growth amounted one-third of the world growth in the same year. In addition, China's economy GREW more than 9% in 2009, whereas the world economy LOST 2%. It appears that China is now a sole locomotive driving the global economy.
Nonetheless, the world stock markets haven't responded to the decline of China's stock.
In fact, the S&P500 gained 6% since early December, while the Shanghai composite declined 5% in the same period. Does this mean a "decoupling" of China from outside world? Given that China's stock market is intrinsically different from other markets in the sense that it's driven more by politics than economics, it seems that a contrasting move of stock markets between two countries isn't surprising at all.
I have no definitive answer yet to why the world isn't responding to China's stock market slump, even though China's influence in the global economy is increasing exponentially. More time is needed to scrutinize it.
What everybody is now watching very closely is, however, China, the second largest economy in the world. The country raised its reserve requirement ratio by 50bp last week, the seventh in a year. Fear of economic slowdown due to the rate hike dived the Shanghai composite, a benchmark index of China's stock, to a nearly three-month low of 2677.65 on Thursday.
Will China's economy slow down so soon this year? At least for now, it seems that the world markets read it as only China's problem, not themselves.
First, let's look at how China is big in the current world economy. China's contribution to the world growth has been increasing dramatically for the last ten years. Though it plunged in 2008 because of the recession after the Lehman crisis, the country's growth amounted one-third of the world growth in the same year. In addition, China's economy GREW more than 9% in 2009, whereas the world economy LOST 2%. It appears that China is now a sole locomotive driving the global economy.
Nonetheless, the world stock markets haven't responded to the decline of China's stock.
In fact, the S&P500 gained 6% since early December, while the Shanghai composite declined 5% in the same period. Does this mean a "decoupling" of China from outside world? Given that China's stock market is intrinsically different from other markets in the sense that it's driven more by politics than economics, it seems that a contrasting move of stock markets between two countries isn't surprising at all.
I have no definitive answer yet to why the world isn't responding to China's stock market slump, even though China's influence in the global economy is increasing exponentially. More time is needed to scrutinize it.
posted by Akihiro Gotoda at
2:11 PM
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