April 5, 2016—Major emerging markets, led by China, are increasingly likely to spread fear to financial markets and lead to poor stock performance in the U.S. and other developed countries, the International Monetary Fund (IMF) said.
Equity-market spillovers to advanced economies coming from leading emerging markets have risen 28 percent since the 2008 financial crisis, according to the IMF’s calculations. The movements of all nations’ equity markets in 2015 were 80 percent attributable to markets in other countries, compared with a 50 percent linkage in 1995.
China’s financial system has relatively small direct linkages to economies such as the U.S., compared with the banking and financial ties of other big economies such as Japan’s. Meanwhile, exports make up a relatively small part of the U.S. economy, so worries about China’s economic health shouldn’t sink the outlook for most U.S. companies.
But the IMF found that China appears to have a special ability to trigger market moves in other countries based on the release of economic news and data. With a fragile global expansion, twists and turns of the world’s second-largest economy often appear to be more consequential on Wall Street than what is happening on American main streets.
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