China is once again at the center of global jitters. New Year has a nasty start for global markets. The root of the malaise is in the volatile data points that are popping out of China at a periodic fashion. Maligned manufacturing PMI data released in the Ist week spooked the markets which were already edgy on crumbling crude. Market’s adjustments to volatile Chinese data points (economic) will be anything but smooth. China’s inept handling so far of both stock and currency markets does little to inspire any confidence.
Fears of Chinese slowdown are real and the transition from investment led to consumption led economy will not be without pains. Eerie resemblance to 2008 crisis has caused markets to fret a full blown financial crisis from hardening growth and ballooning debt in China. Such fears are far fetched and global economic fundamentals, though fragile, do not suggest such a colossal slump.
As for the markets, they are a different breed all together. Markets rarely adjust in an orderly fashion. They undershoot and overshoot all the time because of their inherent self feeding nature. It swings from seeing only positives to seeing only negatives. Technicals override fundamentals in the short-term. It is always possible that the fear cycle can feed on itself to wreck the markets into manic meltdown, not the case so far though.
When there is basket selling by FIIs, rarely markets get differentiated. No markets are spared of this madness. India is no exception and it might suffer one of its worst losses. In no coincidence, India saw one of the worst ever FII outflows in the month of January since 2008 with over $2Bn selling by FIIs. When dust settles and sanity returns, markets start differentiating. India is well placed to emerge as one of the few bright spots in the weakening global macro. India is in such a stage of an economic cycle where interest rates are coming off with moderating inflation and investment cycle just turning. While China’s slowing growth and its management will be a huge overhang for global markets, over time, flows will gush into promising markets for its returns, slowly decoupling from china. India will stand to gain from that decoupling.