China’s Dialed Back Decade Dominance

With Chinese “A” shares’ 40% gain at the top of the core MSCI Index last year amid past decade retrospectives charting the mainland’s across the board asset class hold, investors expect economic and financial market growth momentum to flag over the medium term as they look for other geographic and thematic anchors. The disconnect between emerging market share of global GDP and stock market capitalization, at 60% and 20% respectively remains as wide as ever despite the latter near doubling to over $6 trillion since 2010 with China accounting for 30% of the figure. In daily currency trading the EM portion is now one quarter, with the renimbi and Hong Kong dollar the runaway favorites at over $500 billion combined annually. Local and external debt sales tell the same story at $2.5 trillion in 2019, triple the amount during the 2009 crisis. Chinese companies are almost one-third the Bank of America gauge in that category, with Mexican ones a distant second at less than one-tenth. The two most popular Vanguard and iShares ETFs listed in New York, with $60 billion each under management, have similar mainland weighting roughly mirroring the current MSCI formula. It will increase in 2020 as more “A” listings are added, and more market-friendly IPO rules go into effect for foreign investor access outside long-running bilateral trade and financial services negotiations that will continue to affect sentiment around the US presidential election.

Asia with its closer ties was again the top performing region as the MSCI main index rose 15% last year, with the so-called BRICS up 20% with Russia’s equal 40% spurt. Taiwan was in second place with 30%, and Korea was the only other double-digit winner. India, Indonesia and Thailand were ahead single digits, while Malaysia lost 5% but was behind Bangladesh (-18%) on the frontier index as the biggest area drop. In Latin America Brazil and Colombia jumped over 20%, but Chile declined in comparable magnitude and Mexico’s advance was just half the benchmark one. In Europe Greece’s climb equaled Russia’s, Hungary matched the MSCI, and Turkey (+7%) ended positive after early year carnage, but Poland and the Czech Republic slid. In the Middle East complex Egypt (+38%) triumphed by far, with Saudi Arabia (+5% barely helped from the gigantic Aramco offering designed for domestic and Gulf buyers. The UAE and Qatar were in the negative column, as frontier Bahrain and Kuwait otherwise paced the GCC pack with 30-40% upticks.

That universe lagged 2% behind the core, with Lebanon’s 50% crash amid political gridlock and protests and possible debt default and exchange rate realignment dragging the region. Africa was up just 5% as Kenya’s 40% jump was offset by double-digit setbacks in Nigeria, Botswana and Zimbabwe, in contrast with South Africa’s +7% close. Europe’s ten markets were mixed, with 20-30% rises in Lithuania, Romania and Slovenia, and Bulgaria and Ukraine the biggest losers as the former is due to formally enter the euro. In Central America/ Caribbean Jamaica and Trinidad went opposite ways and Panama (+35%) was a standout in a triangle hobbled by bad migration and security trends as exotic markets reconfigure their own geometry.