Chinese disinflation wave is set to boost emerging-market bonds
[ZURICH/SINGAPORE] A wave of Chinese exports redirected towards emerging markets is likely to help crimp inflation across the developing world and bolster longer-maturity bonds, fund managers say.
Goods from the Asian nation are set to flow away from the US due to the higher tariffs imposed by US President Donald Trump, and be a force for disinflation elsewhere, according to Principal Asset Management, Banque Lombard Odier et Cie, and Barclays. Bonds in countries with a high ratio of Chinese imports will benefit the most, including Malaysia, Brazil and South Africa, Barclays says.
'There's a potential for disinflationary forces to be pushed out' to other countries due to the spare capacity in China, said Howe Chung Wan, head of Asian fixed income at Principal Asset in Singapore. 'We like duration' and favour sovereign bonds in local markets that are currency hedged, he said.
Emerging-market local-currency bonds have rallied in the past month, with a Bloomberg index of the securities rising about 2 per cent, as Trump's tariff threats have weakened the US dollar and pushed down the price of oil. Downward pressure on inflation, coupled with appreciating currencies, are seen as giving central banks more room to cut interest rates, adding to the allure of longer-maturity debt.
China's exports to the US slid 21 per cent in April from a year earlier after the imposition of higher tariffs earlier in the month, according to government data published last week. At the same time, firms the nation were able to increase sales to other markets to compensate, with total exports jumping 8.1 per cent during the period, far more than economists forecast.
China and the US reached a trade truce this week, under which the combined 145 per cent US levies on most Chinese imports will be reduced to 30 per cent, while the Asian nation's 125 per cent duties on US goods will drop to 10 per cent. Still, the agreement will expire after just 90 days if no further deal is reached.
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
Sign Up
Sign Up
Cheap imports
One of the main reasons to be positive on longer dated emerging-market bonds is the fact that China-driven disinflation will allow policymakers to lower interest rates, according to Guan Yi Low, a fixed-income portfolio manager at M&G in Singapore.
'Near term, we could be facing even more disinflation from the cheap Chinese imports,' she said. 'This frees up the ability of a lot of the Asian central banks to bring forward the policy cuts.' The weakness of the US dollar also means that policymakers will no longer have to worry about possible currency weakness if they lower interest rates, she said.
The increase in cheap Chinese imports is not always viewed positively.
The Bank of Thailand and Thai companies have warned about the impact of Chinese imports 'flooding' South-east Asia's markets and undercutting other producers.
Some are still wary about buying emerging-market local-currency bonds, saying the relatively high US interest rates will limit flows into the securities.
Lombard Odier's clients still prefer US dollar-denominated debt, said John Woods, chief investment officer for Asia in Hong Kong 'I'm not yet ready to call a substantial weakness in the US dollar,' he said. 'The interest-rate differential is still quite wide.'
Others are more bullish. MFS Investment Management said it holds an overweight position on Asian debt due to its positive view on duration, or the sensitivity of a bond to changes in interest rates.
'Duration is mainly what we think is the most attractively valued right now because central banks will use the opportunity of US dollar weakness to cut more,' said Ward Brown, a portfolio manager at the Boston-based money manager. 'We have not had overweights in Asian duration for some time, but we have some now.' BLOOMBERG
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
CNA
3 hours ago
- CNA
China says it may speed up rare earths application approvals from EU
SHANGHAI: China is willing to accelerate the examination and approval of rare earth exports to European Union firms and will also deliver a verdict on its trade investigation of EU brandy imports by July 5, its commerce ministry said on Saturday (Jun 7). Price commitment consultations between China and the EU on Chinese-made electric vehicles exported to the EU have also entered a final stage but efforts from both sides are still needed, according to a statement on the Chinese Commerce Ministry's website. The issues were discussed between Chinese Commerce Minister Wang Wentao and EU Trade Commissioner Maros Sefcovic in Paris on Tuesday, according to the statement. Most recently, China's decision in April to suspend exports of a wide range of rare earths and related magnets has upended the supply chains central to automakers, aerospace manufacturers, semiconductor companies and military contractors around the world. The ministry said China attached great importance to the EU's concerns and "was willing to establish a green channel for qualified applications to speed up the approval process". In a separate statement the commerce ministry issued later on Saturday, it said China was willing to further strengthen communication and dialogue with relevant countries on rare earth export controls as it recognised that demand from sectors such as robotics and electric vehicles had risen. BRANDY, EVS The ministry earlier said that Commerce Minister Wang during the meeting "expressed the hope that the EU will meet us halfway and take effective measures to facilitate, safeguard and promote compliant trade in high-tech products to China". Chinese anti-dumping measures that applied duties of up to 39 per cent on imports of European brandy - with French cognac bearing the brunt - have also strained relations between Paris and Beijing. The brandy duties were enforced days after the EU took action against Chinese-made electric vehicle imports to shield its local industry, prompting France's President Emmanuel Macron to accuse Beijing of "pure retaliation". The Chinese duties have dented sales of brands including LVMH's Hennessy, Pernod Ricard's Martell and Remy Cointreau. Beijing was initially meant to make a final decision on the brandy duties by January, but extended the deadline to April and then again to July 5. China's Commerce Ministry said on Saturday that French companies and relevant associations had proactively submitted applications on price commitments for brandy to China and that Chinese investigators had reached an agreement with them on the core terms. Chinese authorities were now reviewing the complete text on those commitments and would issue a final announcement before July 5, it said. In April, the European Commission said the EU and China had also agreed to look into setting minimum prices of Chinese-made electric vehicles instead of tariffs imposed by the EU last year.
CNA
5 hours ago
- CNA
US and China set for trade talks in London on Monday
WASHINGTON: Three of US President Donald Trump's top aides will meet with their Chinese counterparts in London on Monday (Jun 9) for talks aimed at resolving a trade dispute between the world's two largest economies that has kept global markets on edge. US Treasury Secretary Scott Bessent, Commerce Secretary Howard Lutnick and Trade Representative Jamieson Greer will represent the United States in the talks, Trump announced in a post on his Truth Social platform without providing further details. China's foreign ministry said on Saturday that vice premier He Lifeng will be in the United Kingdom between June 8 and June 13, adding that the first meeting of the China-US economic and trade consultation mechanism would be held during this visit. "The meeting should go very well," Trump wrote. Trump spoke to Chinese President Xi Jinping on Thursday in a rare leader-to-leader call amid weeks of brewing trade tensions and a dispute over critical minerals. Trump and Xi agreed to visit one another and asked their staffs to hold talks in the meantime. Both countries are under pressure to relieve tensions, with the global economy under pressure over Chinese control over the rare earth mineral exports of which it is the dominant producer and investors more broadly anxious about Trump's wider effort to impose tariffs on goods from most US trading partners. China, meanwhile, has seen its own supply of key US imports like chip-design software and nuclear plant parts curtailed. The countries struck a 90-day deal on May 12 in Geneva to roll back some of the triple-digit, tit-for-tat tariffs they had placed on each other since Trump returned to the presidency in January. That preliminary deal sparked a global relief rally in stock markets, and US indexes that had been in or near bear market levels have recouped the lion's share of their losses. The S&P 500 stock index, which at its lowest point in early April was down nearly 18 per cent after Trump unveiled his sweeping "Liberation Day" tariffs on goods from across the globe, is now only about 2 per cent below its record high from mid-February. The final third of that rally followed the US-China truce struck in Geneva. Still, that temporary deal did not address broader concerns that strain the bilateral relationship, from the illicit fentanyl trade to the status of democratically governed Taiwan and US complaints about China's state-dominated, export-driven economic model. Trump has repeatedly threatened an array of punitive measures on trading partners, only to revoke some of them at the last minute. The on-again, off-again approach has baffled world leaders and spooked business executives. China sees mineral exports as a source of leverage. Halting those exports could put domestic political pressure on the Republican US president if economic growth sags because companies cannot make mineral-powered products. In recent years, US officials have identified China as its top geopolitical rival and the only country in the world able to challenge the United States economically and militarily.
Independent Singapore
6 hours ago
- Independent Singapore
From bromance to blow-up: Trump and Musk's bitter spat
The most ballyhooed bromance on earth blew up in spectacular fashion on Thursday when the world's most powerful leader traded barbs online with the world's richest man. In the middle of a meeting with the German chancellor, US President Donald Trump posted that he was 'disappointed in Elon', stung by the tech tycoon's unrelenting criticism of his 'big, beautiful bill'. The spat between these high-profile bromates lit up the internet, with live-blogging websites offering tweet-by-tweet updates, and others speculating—sometimes behind paywalls—on whether the erstwhile bosom buddies had become bitter enemies. Only the most incorrigible punters would dare wager whether the rift is permanent or passing. Given their mercurial temperaments, today's feud could easily become tomorrow's flirtation. Supporters of strong governance may, nevertheless, be relieved. The world's most powerful leader is still more potent than its richest man—at least for now. Musk blinked first. Musk indicated on X he is ready to relent, but the White House has turned a cold shoulder. The president reportedly continues to criticise the Tesla, X and SpaceX boss in private. Costly spat The spat could prove costly for both men. While Trump and his political action committees may not receive the $100 million or more reportedly pledged by Musk, the tycoon risks losing billions. Trump has threatened to cancel his government contracts, posting: 'The easiest way to save money in our Budget, Billions and Billions of Dollars, is to terminate Elon's Governmental Subsidies and Contracts. I was always surprised that Biden didn't do it.' The rift widened after Musk lambasted Trump's signature tax-and-spending bill, calling it a 'disgusting abomination' sure to wreck the nation's finances. To add insult to injury, he claimed Trump wouldn't have won the election without his support. Trump said he was 'very disappointed in Musk,' accused him of turning 'hostile' after being turfed out of government, and charged that the billionaire was meddling in politics to further his business interests. Musk, who spent over $250 million supporting Trump's re-election bid last year and once declared, 'I love @realDonaldTrump as much as a straight man can love another man,' hit back hard. He called for Trump's impeachment and replacement by Vice President JD Vance and warned that the president's tariffs could trigger a US recession. See also Hillary Clinton urges Biden not to concede in close election He also insinuated that Trump's name appeared in sealed files relating to the late sex offender Jeffrey Epstein. Still, Musk eventually toned down his rhetoric. After threatening to decommission his Dragon spacecraft, which NASA uses to transport astronauts, he responded to a netizen urging calm with: 'Good advice… Ok, we won't decommission Dragon.' His conciliatory tone, however, received no response from the White House. Trump may struggle to find alternatives if he scraps contracts with Musk's companies. SpaceX remains the only US firm transporting astronauts to and from space. Several government agencies also depend on its Falcon rockets, in-orbit vehicles, and the Starlink network—more than 7,500 internet satellites, which Ukraine has used in its war against Russia. Media pundits are almost unanimous in concluding that the bromance was doomed from the start—doomed by two towering egos unwilling to share the spotlight. Ideological divide? But Guardian columnist Jonathan Freedland sees more than just a personality clash. He believes there is also an ideological divide. See also Trump and Biden outline competing visions for US economy Musk's opposition to Trump's 'big, beautiful bill' may be linked to its failure to extend tax credits for electric vehicles—a provision that might have boosted Tesla's sagging sales. Publicly, however, Musk has criticised the bill on fiscal grounds, warning that it will deepen the already gargantuan US deficit. In doing so, he has recast himself as a champion of traditional, deficit-conscious Republicans. Freedland notes a growing divide on the American right: between old-school conservatives who worry about fiscal responsibility, and nationalists like Trump's former strategist Steve Bannon, who support tariffs and oppose global immigration. Musk, by contrast, has argued against tariffs and in favour of keeping the US open to highly skilled, tech-savvy immigrants. He has even called for the formation of a new political party. No wonder the bromance has broken down. But then again, politics makes strange bedfellows—and anything's possible. Featured image by Depositphotos (for illustration purposes only)
