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China’s Growth Slowdown Is Spooking Markets, Problems Abound

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Dec. 12 2018, Updated 11:01 a.m. ET

China’s slowing growth

One of the major factors spooking the markets worldwide has been the concern about China’s economic slowdown. According to Bank of America Merrill Lynch’s survey for November, apart from trade war risk and concerns about quantitative tightening, China’s slowdown was fund managers’ biggest worry. It was cited as such by 14% of survey respondents.

As the trade war escalates, concerns about China’s slowdown are also picking up. A slowdown in China could have a spillover effect on the world’s economies.

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Trade conflict

China’s economic growth has cooled off. One of the major factors impacting China’s growth outlook and investor sentiment has been the ongoing trade conflict between the United States (DIA) (SPY) and China (FXI).

The United States has already imposed three rounds of tariffs covering a total of $250 billion worth of Chinese imports. The latest round of 10% tariffs on $200 billion worth of Chinese goods was slated to increase to 25% at the beginning of 2019. The two countries have, however, agreed on a 90-day trade truce.

Apart from a trade war, China’s slowing domestic growth has been the major reason for the market’s pessimism toward it.

Equity markets

Chinese equity markets have fallen ~20% from their 2018 highs. China’s famed so-called BAT stocks—Baidu (BIDU), Alibaba (BABA), and Tencent Holdings (TCEHY)—have fallen 27%, 20.7%, and 30%, respectively, year-to-date based on their closing prices on December 10.

One of the market segments facing a higher-than-proportionate impact from China’s slowdown is the metals market. Since China is the world’s largest metal consumer, metals are highly vulnerable developments in China.

In this series, we’ll discuss the outlook for the Chinese economy based on several indicators. We’ll discuss this in context to understand its impact on commodities—especially iron ore.

In the next article, we’ll see what the demand indicators in aggregate mean for China’s economic outlook.

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