Markets are in a deep funk, rattled by the prospect of inflation surges in the US that will prompt aggressive rate hikes by the US Federal Reserve. The Ukraine war and the worsening tensions between the US and China have added to the confusion among investors. And the ups and downs of lockdowns and Covid infections in China, the world’s second-largest economy, added to the sense that nothing was going right.
This market behaviour and the associated shakiness in the global economy are the product of three major shifts — in how financial assets are priced, in the way big power tussles affect the world and in how China’s economy operates and impacts the rest of us. Understanding all these is necessary to fully appreciate what it all means for us in Asia.
First game-changer: Financial assets pricing