On Monday, October 14th, the emerging market currency index dropped due to the lackluster fiscal stimulus measures implemented by the Chinese Communist Party, which propelled the US dollar higher.
In addition, Chile, Peru, and Mexico saw the biggest declines while the Brazilian Real showed resilience, outperforming other currencies.
Last Saturday, October 12th, the Chinese Finance Minister promised to take new measures to support the real estate industry and hinted at increasing borrowing. However, no detailed figures on the stimulus measures were provided, and no other plans to boost consumption were announced, leading to a tepid market response.
According to Bloomberg, Elias Haddad, a strategist from investment firm Brown Brothers Harriman, stated that the fiscal information released by Beijing over the weekend was disappointing, weakening the upward momentum of risk assets and providing support for the US dollar.
Haddad remarked, “The strength of the US dollar this time is because, relative to other major economies, there is greater room for interest rate hikes in the US.”
The Chinese economy is facing multiple challenges by the end of this year, including declining corporate revenue, falling real estate prices, dwindling local government finances, rising youth unemployment, as well as seasonal year-end financial pressures, which could lead to a widespread debt crisis.
The Wall Street Journal reported that the Chinese Ministry of Finance’s press conference only outlined plans without providing an overall figure, leaving investors in a wait-and-see mode similar to last week.
American investor Andrea Lisi expressed on social media that the ambiguity of the Chinese Ministry of Finance’s press conference could lead to more selling than buying.
Lisi wrote, “Chinese policymakers do not understand that if they want to initiate sustainable economic growth, they must empower Chinese consumers to purchase more products.”
He suggested temporarily avoiding chasing the current frenzy in the Chinese stock market and reducing the proportion of Chinese stocks in emerging market ETFs.
Economists estimate that China needs an additional stimulus package of ¥10 trillion within two years to boost the economy, with a significant portion of the funds allocated to households to support domestic demand.
The Bloomberg Dollar Spot Index rose by 0.3% on Monday.
In terms of the stock market, the optimism surrounding the upcoming corporate earnings reports led to gains in the US S&P 500 index, while the MSCI Emerging Markets Index, primarily composed of Asian stocks, remained largely unchanged. The two largest exchange-traded funds tracking emerging market stocks listed in the US experienced declines.