Next month will mark two years since China’s surprise devaluation of the yuan – and the ‘Black Monday’ that followed two weeks later – sent tremors through global markets.
In light of all that happened in 2016, these events feel like a distant memory now. China’s economy has been a lingering concern for many years, but in the era of Brexit and Donald Trump, three’s a crowd.
It has become too easy to filter everything through the prism of either the EU vote or US election outcome. So it was with the ‘Trump trade’.
While these market moves were undeniably accelerated by the November 8 election, they were also a continuation of a pattern that began several months earlier. And that’s the clue as to why China still matters.
The reflationary impulses that began last summer seem likely to have been spurred by the huge stimulus programme launched by Beijing in the first quarter to prop up its economy.
The hefty increase for commodity prices, including oil, can be traced back to this decision, too. Add those together and many of the major moves of last year – in financials, bond yields, and value stocks – appear to have been prompted by policy in China rather than the US.
More recently, as sliding commodity prices emphasise, there have been worries that this trade is going into reverse. This may be in part because China has reined in its stimulus programme.
But we learned last week that second-quarter GDP in the country was a better-than-expected 6.9 per cent. The growth appears to have been down to the still-booming property market offsetting tighter monetary policy.
This might not be great news for Chinese policymakers, in that it suggests attempts to shift towards a consumer-driven economy have stalled again.
For the rest of the world, whatever the doubts over the reflation trade, it’s at least an indication that the punch bowl isn’t empty yet. Worries about Chinese real estate, the value of the yuan, or indeed anything else are being pushed to the back of investors’ minds in the meantime.
Which brings us to another anniversary: July 10 was a decade since Citigroup’s Chuck Prince infamously told the Financial Times that “as long as the music is playing, you’ve got to get up and dance. We’re still dancing”.
Whatever the catalyst, investors are still dancing in 2017, too.
Dan Jones is editor of Investment Adviser