Markets remain bullish on fears of impending China recession

Evergrande, China’s second-largest real estate developer in the country by market share, has said that the cash flow problem has arisen due to the slump in home sales and this situation is not likely to ease in the near future. Aside from fears of a possible Chinese infection, upcoming policy meetings of major central banks grew into panic as investors feared that monetary policy regulators would start hinting at easing their stimulus programs at their meetings this week.

European markets fell to near two-month lows on Monday and Germany’s benchmark index fell 2%. This week central banks in the EU, Japan, UK, Switzerland, Sweden, Norway, Indonesia, Philippines, Taiwan, Brazil, South Africa, Turkey and Hungary will hold related meetings to decide on key policy rates in the backdrop of a covid19 stimulus. are the ones. The measure, which has ensured easy liquidity in markets across the world since March last year.

In other Asia-Pacific regions, Hong Kong’s Hang Seng index fell 3.3% as concerns about China’s economy loomed large on Thursday with asset giant Evergrande bond interest payments. Markets in mainland China, Japan and South Korea were closed for the holidays on Monday. Sharekhan Major Chinese real estate major Evergrande is feeling the heat of default on a $300 billion loan by BNP Paribas global markets, according to leading capital markets strategy Gaurav Dua. He said the delay in intervention by Chinese authorities to limit the risk of contagion is troubling financial markets globally.

“While officials in Beijing are expected to come up with a bailout package soon, the incident could drag down the Chinese economy and, consequently, the global economy and commodity prices. This unfortunate incident comes at a time when global markets are already facing a lack of quantitative easing (QE) by the US Fed in the coming months. In India, there may also be some worrying moments for equity investors ahead of the UP elections,” said Dua. Metal counters were also down, according to analysts, because of the recent high GST rates on ores and metals such as iron, manganese. was applied to. , etc., the added pressure has been increased by 5-18%.

Meanwhile, the US federal is expected to lay the groundwork for a tapering off at its policy meeting on Tuesday and Wednesday, although the consensus is to delay the actual announcement until the November or December meetings. The market consensus is for two hikes in 2023 and four in 2024, with the long-term fed funds rate seen at 2.125%.

Analysts at Credit Suisse Wealth Management, India believe that although extended valuations and the upcoming Fed meeting may bring some volatility, Indian equities still offer relatively better risk-reward from a medium to long-term outlook.

“India’s macro fundamentals have improved and we expect the price-to-earnings premium to remain high for Indian equities. Investors should stay invested in equities but focus on reducing the beta of their portfolio. The outlook for the banking sector has improved materially where we remain very constructive,” he said in a note on September 17.

Indian markets have outperformed global peers, but FII inflows into equities have been declining over the past two months. Indian benchmark indices have risen 23-25% this year, outperforming MSCI World Index’s 16% gain and MSCI EM’s 0.2% fall.

“As the Fed and other central banks consider the current pandemic situation and the growing delta variant in the US, we believe the stimulus will continue. This will support liquidity. India is in a better position than many other developed countries in terms of control of COVID cases,” said Mitul Shah, Head of Research, Reliance Securities.

However, he added that if the Fed decides to reduce interest rates in its meeting, it will affect inflows into equity markets, including Indian stocks.