China jitters could trigger global market bloodbath, IMF warns

Monday, April 4, 2016
By Paul Martin

By Szu Ping Chan
4 APRIL 2016

Jitters over the health of the Chinese economy could trigger a bloodbath on financial markets if a hard landing materialises, the International Monetary Fund has warned.

The IMF said policy choices in the world’s second largest economy would also have “increasing implications for global financial stability” in the coming years as the country opens up its bond and equity markets.

The fund said emerging market economies such as China, India, Brazil and Russia had driven more than half of global growth over the past 15 years.

Stronger trade ties and financial linkages meant spillovers from these countries had become “the norm, not the exception”, increasing the risk that future shocks could send powerful reverberations around the globe.

The IMF calculated that emerging market spillovers now accounted for a third of the fluctuations seen in equity and currency markets in advanced nations.

Highlighting last summer’s massive stock market sell-off after China devalued its currency, the IMF noted that Chinese growth had an “increasing” and “significant” impact on global equity prices.

“The impact of shocks to China’s fundamentals on global financial markets is expected to grow stronger and wider over time,” the Fund said in a pre-released chapter of its Financial Stability report.

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