Investors cautious on global equities

It appears that fears of an emerging market crisis were overblown.

There were comparisons to the sell-off last summer when the Fed first mentioned tapering. The underlying cause running up to this is quite different from last May. The slowdown in China, which was the main focus for investors, is arguably what is needed for the country to rebalance. The peripheral issue of a contraction in manufacturing highlights the larger concern; such as shadow banking in the country.

The other reason is the delayed QE tapering reaction, which we did not get when it happened in December. The exit of funds from EM might not be over as the tapering program of $10 billion means the Fed is still purchasing assets and is keeping markets buoyed.

Structural problems in the emerging market, mostly due to the lack of implementation of sound policies during economic boom time, means emerging Asia has struggled to maintain growth momentum. The pockets of growth lies in countries like South Korea and Taiwan. Exports for South Korea for December grew 7% compared to 0.2% in November and GDP for 4Q picked up. In Taiwan, manufacturing increased but exports declined in December. GDP for 4Q was rather flat.

The correction so far this year in both the S&P 500 and emerging Asia has been described as both healthy and unhealthy. The truth is; investors are looking at how well markets will weather through the volatility, as it is critical at this stage.

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication.