Little Trouble in Big China

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The Day So Far…

No I did not misquote the 1986 classic “Big Trouble in little China”, rather I refer to my feelings as to what the news overnight means for financial markets. Moody’s downgraded the sovereign rating of China for the first time since 1989 due to the growing amount of debt being accumulated in order to maintain the current pace of economic growth. Although the local equity markets and AUD fell overnight the currency has since rebounded and the read across into the European open has been muted. To me this news is unsurprising as the China of 1989 compared to the China in 2017 is a starkly different beast and so a change was warranted sooner or later. Secondly, in the context of the other rating agencies the move to Aa3 at Moody’s puts them on par with where Fitch is already and just one notch below S&P, so in reality the downgrade is not massive news.