The emerging market slowdown is not really a problem

Some people may be surprised after the strong Chinese August data were released on Tuesday. Some experts and economists believe the data have shown the stabilization and improvement of the Chinese economy and the worry about the Chinese economy's hard landing is mitigated by such data. In addition, the possibility of a further cut in rates by the Chinese central bank decreases as well. The Chinese economy is the largest economy in the emerging economies and is the model of other emerging economies. Maybe we cannot receive as good data as the Chinese ones from other emerging economies, the great Chinese economy could ease people's worry about the impact of the emerging market slowdown in the world economy.

However, I never worry about the emerging market slowdown. The slowdown of the emerging market expansion is not a cause but a result. It is the result of the slowdown of the whole world economy, as the emerging markets often play the role of the manufactures of the world. When there is a decrease in the demand, the supply will reduce to re-balance the market, this is the reason for the emerging market slowdown. When the world economy is in a boom, we do not need to worry about the emerging markets, even some emerging economies may not perform very well, the problems are very individual and less likely to affect the entire world economy.

I have repeated myself for many times that the one thing that I really worry about is the default rates around the world. Not only the default rates in the high yield bond markets, but also the possible defaults in the low yield bond markets as well as the government bond markets may have deadly effects on the financial markets and the entire world economy as a whole.