Asian markets dropped on Tuesday as weak economic data from China raised concerns about global growth. Investors were worried that Beijing’s post-Covid recovery was not progressing as expected, despite expectations of further stimulus measures. Second-quarter data from China missed forecasts, leading to a retreat in regional markets that extended from Monday’s losses. Analysts warned that leaders were limited in how much stimulus they could provide, raising fears of a potential recession. Investors are now closely watching for further developments in the Chinese economy to determine the future of global growth.
Fears of Deflation and Economic Downturn in Asian Markets
China’s economy showed signs of slowing down as reports showed inflation had flatlined and exports had dropped for a second straight month. This has led to fears of deflation and a possible economic downturn. Global markets reacted negatively to the news, with Hong Kong leading losses in early trade, shedding more than one percent. Other markets such as Shanghai, Sydney, Seoul, Singapore, Wellington, and Taipei also dropped. However, there is hope that stimulus measures may help to improve the situation in the third quarter. Wall Street provided a positive lead, but it was not enough to offset the negative news from China.
Further Regulatory Relaxation Suggested for Real Estate Sector
Natixis CIB analysts Alicia Garcia Herrero and Jianwei Xu have expressed caution about the extent of policy support for China’s economy in the near future. They point out that fiscal policies may be difficult to implement due to the country’s high public debt and reduced efficiency of these policies. Analysts suggest the central bank may use rate cuts and reserve reduction, but low investor confidence may limit effectiveness. To help bolster investor confidence, the analysts suggest further regulatory relaxation on key sectors, such as the real estate sector.
Janet Yellen cautions about China’s slowing growth impact on the global economy, especially in Asia. Despite concerns, Yellen is optimistic about the US economy, stating it is on a “good path” with no recession likely. US inflation drop brings hope for end of rate hikes; another increase is expected next week. Investors closely watch corporate earnings season as major companies report their financial performance this week.
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