June proved to be a challenging month for emerging market investors as trade tensions between the US and China continued to escalate. Following US President Donald Trump’s decision to introduce a range of levies on Chinese goods, he subsequently threatened to impose tariffs on a further US$200 billion of Chinese imports. China warned that, while it did not want a trade war, it would, “strike back” if necessary.
- India’s central bank raised interest rates for the first time since 2014
- China cut its reserve requirement ratio
- The IMF reached a bailout agreement with Argentina
To view the series of market updates through June, click here
June proved to be a challenging month for emerging market investors as trade tensions between the US and China continued to escalate. China’s trade surplus with the US breached US$100 billion in May, rising by 11.7% over the month. Following US President Donald Trump’s decision to introduce a range of levies on Chinese goods, he subsequently threatened to impose tariffs on a further US$200 billion of Chinese imports if China did not “change its practices” with regard to its acquisition of US intellectual property. A report from the White House warned that China’s “economic aggression now threatens not only the US economy but also the global economy as a whole”. The US later backtracked, saying it would focus on using existing regulation. China warned that, while it did not want a trade war, it would, if necessary, “strike back to defend the interest of our country and its people”, and threatened to implement “powerful and comprehensive solutions both in quantitative and qualitative ways.”
“China’s trade surplus with the US breached US$100 billion in May”
In a bid to mitigate any adverse effects resulting from the US trade tariffs, the People’s Bank of China (PBoC) announced that it was cutting the level of capital that lenders have to hold in reserve. Elsewhere during the month, PBoC Governor Yi Gang urged investors to remember that the growth fundamentals of China’s economy are “sound”, and it has “sufficient means and space to cope with all forms of trade frictions”. The Shanghai Composite Index fell to its lowest level for two years during June; over the month as a whole, the benchmark index declined by 8%.
The Reserve Bank of India (RBI) raised its key interest rate by 25 basis points to 6.25%; the move represented its first increase since 2014. Although the RBI maintained a “neutral” position, policymakers cited signs of increasing inflationary pressures and highlighted a “hardening of underlying inflationary pressures” caused by higher oil prices and volatility in global financial markets. India’s economy is calculated to have expanded by 7.7% over the first three months of 2018. The CNX Nifty Index fell by 0.2% during June.
The International Monetary Fund (IMF) reached an agreement with Argentina over a bailout deal worth US$50 billion over three years. The deal was designed to boost market confidence and to allow the country’s leaders to address “longstanding vulnerabilities” and rebalance its fiscal position.
A version of this and other market briefings are available to use in our newsletter builder feature. Click here