Emerging Markets

The Chinese economy will not recover without significant “irrigation-style” stimulus. The latter is still unlikely for the time being. Dim economic fundamentals justify lower valuations of Chinese equities. Lingering deflationary pressures entail even lower interest rates, which is bearish for the RMB.

China’s reopening faltered and now it is applying moderate stimulus. OPEC 2.0’s production discipline is getting results, with oil prices climbing. The Fed will not be able to deliver dovish surprises in Q4 2023. Investors should expect stock market and commodity volatility and prefer defensive positioning.

While Chinese stocks have low valuations and are oversold, their attractiveness is dampened by uncertainties in the magnitude of stimulus and the dismal outlook for corporate profits in the next six to nine months.

Real wages are set to rise in CE3 economies with implications for their asset markets and currencies. Of the three, Polish assets and the zloty are the most vulnerable.