Funds flow into China, central banking and the US energy mix
This week's chart covers the following topics:
Hawkish and dovish central banks – and the one-size-fits-all ECB dilemma
Rate cuts are priced in around the world this year. However, there has been some recent pushback on those expectations: Jerome Powell suggested Fed watchers shouldn’t expect a cut in March.
The presence of Latin American countries on the left-hand side is notable. Last year, we named Brazil and Mexico as “early hikers:” their central banks have had more history of steeply raising rates to fight inflation in recent decades than their developed-market peers.
However, green bars don’t just reflect tough policy: they can be a consequence of speedily cooling inflation, as seems to be the case for Canada and India.
Unsurprisingly, Japan is at the right-hand side of the chart: still running a negative interest-rate policy even as price increases pick up, as the central bank awaits a “virtuous” wage-price spiral.
Ireland and Finland are also notable due to their elevated inflation, showing the challenges of the European Central Bank’s one-size-fits-all monetary policy for 20 countries.
Emerging market fund flows rediscover China
This chart requires a subscription to the EPFR Fund Flow add-on database.
Stock markets in mainland China and Hong Kong have been slumping to multi-year lows.
However, equity fund flows into China have spiked higher lately, with asset managers perhaps lured by cheap valuations.
Data from EPFR is showing that weekly fund flows into emerging-market equities have picked up. As the spike in our chart shows, they reached a multi-year high of USD 12.5 billion in the week through Jan. 24. The inflows fell off somewhat last week, but are still high when compared to the last two years.
As the top pane of our chart shows, this can be broken down to show how that entire gain is headed to Asian equities – especially China.
The second panel shows how institutional investors account for all of that influx: retail investors are, in fact, pulling their money.
China’s property woes continue
The difficulties in China’s property market continue. The most recent development is the liquidation order from a Hong Kong court received by former mega-developer Evergrande. China is unveiling support measures as a result.
This chart visualizes Chinese housing diffusion indices we created for new and existing homes, incorporating month-on-month changes in primary and secondary residential prices for 70 major cities. A reading of 50 indicates prices were unchanged.
The index for existing homes just touched zero for the first time since 2014; the new housing measure is not far behind.
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