1. Golden Week: The first week of October in China is known as national Golden Week. It is a period when workers take time off for travel and entertainment. Investors monitor the holiday to assess household spending trends, as well as sector beneficiaries. Daily trips on China’s railways set a new record of 20.1 million on 29 September, the first day of the holiday. We are monitoring sales data and company updates in the hotel, airline and property sectors for signs of a change in the current cautious spending trend.

2. Higher for longer: The US Federal Reserve’s (Fed) dot plot, a summary of economic projections for interest rates, indicates US rates will be higher for longer. Updates from Asian manufacturers supplying household goods to US retailers indicates demand in the third-quarter (Q3) period was better than expected. Nevertheless, the cumulative impact of 11 Fed interest rate increases since March 2022 is eroding US household purchasing power. This creates downside risks for demand and in turn emerging market (EM) exports.

3. US dollar strength: The greenback strengthened in the Q3 period, following a weakening trend in the prior two quarters. EMs have historically struggled during periods of US dollar strength due to factors including higher cost of foreign currency debt and tighter liquidity. As there is no uniform EM interest rate trend in the current cycle—Brazil and China are cutting rates while Turkey is raising rates—the historic relationship between the US dollar and emerging markets may not hold as strong. A divergence in performance already occurred in the Q3 period, as domestically-focused markets such as India outperformed externally-focused ones including Taiwan and South Korea.

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