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Will China and the Fed save the markets, as they did in 2016?

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Is this 2016 all over again? If international investors are having flashbacks to the early months of 2016, one can understand why. Many of the drivers of asset prices three years ago are strikingly similar to the ones that are influencing financial markets today.

Then, as now, there was a surge in volatility in stock markets. Then, as now, China’s economy and policy regime were a focal point of anxiety. Then, as now, the Federal Reserve had to reassure investors that it was not hell-bent on raising interest rates aggressively. Other obvious parallels with the start of 2016 include a weakening US dollar, a recovery in commodity markets and an improvement in sentiment towards developing economies.

The similarities have taken on significance partly because of mounting concerns about the health of the global economy. As I argued previously, the sharp slowdown in China has become a more important determinant of sentiment in the past several weeks, amplified by the recent warning from Apple about slowing iPhone sales in the world’s second-largest economy.

The other main reason why the parallels figure prominently in market commentary is because the Fed appears to be in a similar position to the one it found itself early in 2016. Then, as now, the Fed raised interest rates in December and signalled further tightening in the coming year in the face of a China-driven loss of momentum in the global economy. Asset prices plunged and, as is the case........

© South China Morning Post