Oliver Harvey, Macro Strategist at Deutsche Bank, explains that one theme this year has been the pick up in global trade, with the export cycle recovering from post-crisis lows.
“On the demand side, this improvement has been geographically lopsided. Figure 2 breaks down the contributions of global imports by country. Asian (and Chinese) demand has been an even larger driver than in the 2010-2012 trade boom, which followed the massive post-crisis China stimulus package. A decade ago, Asian demand made up just 30% of export growth. Today, it is 60%.”
“If demand from the east slows, and our economists expect it to, which countries are most exposed? Australia, Peru, Singapore, Indonesia, Brazil and New Zealand should have the biggest beta to a slowdown in Chinese demand, all else equal. By contrast, while China is very important for exporters in Korea, Hong Kong, Philippines, Japan and Switzerland, these countries haven't beneﬁtted as much from Chinese growth this year.”
“A more thorough study would measure overall exposure to Asia, particularly as intra-Asian exports have grown substantially in recent years, but here we take China to be the marginal source of it. This broad approach also hides important nuances. The shift in Chinese demand from raw materials to consumer products should beneﬁt exporters like Japan, Korea and New Zealand more than Australia, Brazil and Indonesia, for example, based on their export mix. This week's reduction in import tariﬀs on consumer goods highlights that the China import story has many shades. After the 2009 stimulus slowed, it is notable that imports of manufactured goods like transport equipment continued to grow strongly, even as raw material demand slowed.”
“In terms of FX implications, of the exposed economies highlighted above, all underperformed to varying degrees. Of course, it would be misleading to boil down FX into a simple China beta. As noted recently, this year has all been about idiosyncratic factors rather than one driving theme. But it is important to make the point about the outsized contribution of Chinese demand for global trade growth this year, and the implications for markets going forward. AUD in G10 and SGD in EM may be the best expressions of a slowing, given other vulnerabilities highlighted by our strategists.”
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