Tightening will now have an effect, most likely being felt across the second half of this year. How China handles its debt problem will clearly matter for markets and is likely to be an ongoing story for the next five years.
However, in the short term the implications for markets depend on a number of interconnected factors, in particular the US dollar. The currency has weakened over the course of 2017, easing the management of China’s capital account and generally making for a benign environment for emerging markets.
Stabilisation, or even continued weakness, would prolong this breathing space, helping to support risk appetite globally. But ultimately, the next big shock for global risk assets could emanate from China.
On the 20th anniversary of the Asian financial crisis, all roads lead to Beijing.
James Bateman is chief investment officer of multi-asset at Fidelity International
