MUMBAI, Sept 7 (Reuters Breakingviews) – China is no longer the hottest global trade. It’s only five years since the People’s Republic reached a milestone in its financial opening to the world when MSCI added onshore Chinese stocks to its widely followed global equity indices. Now Western investors have slashed their exposure to the planet’s second-largest economy. Part of the retreat looks permanent.
It’s normal for international capital flows to wax and wane. Many fund managers who have shrunk their China portfolios have also reduced allocations to other emerging markets. With the U.S. Federal Reserve hiking rates and the People’s Bank of China simultaneously lowering borrowing costs, ten-year U.S. Treasury bonds now yield around 160 basis points more than the equivalent Chinese government debt and is near the widest gap since 2007.
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Yet there are deeper…
