According to the old maxim, 'When the US sneezes, the rest of the world catches a cold'.
The implication is that, whenever US markets shift, sooner or later the rest of the world's markets fall into line.
But as China's growth over the past couple of decades has shown, the economic giant now may be the one to affect global markets.
This influence can be attributed in part thanks to the Belt and Road Initiative introduced in 2013, which saw large-scale development and investment initiatives across East Asia and Europe. This significantly boosted regional and global economies.
That was then; now, however there is a regional slowdown in Asia Pacific and in western economies - and even if fingers are not directly pointing at China, there's certainly movement in that direction.
>As usual, the story is more complicated.---Payden & Rygel
Latest statistics from the International Monetary Fund show advanced economies are expected to slow from 2.6 per cent in 2022 to 1.4 per cent in 2024.
Emerging market and developing economies are projected to have a more modest decline in growth from 4.1 per cent in 2022 to 4.0 per cent in both 2023 and 2024.
But even though this compares favourably with western markets, the IMF indicated that lower economic growth in other countries has been influenced partly by China's structural slowdown.
According to the IMF, the post-Covid rebound Chinese economy, which helped fuel its growth during 2023, is projected to lose momentum in 2024.
The economy is set to grow at a slower rate of 4.6 per cent - branded by economists as a 'structural slowdown' - which is taking the Asia Pacific region's overall growth projections to 4.2 per cent.
MSCI China, which captures large and mid-cap representation across the Chinese market, is down 12 per cent over the same period as worries about the nation’s sluggish real estate sector and its economy continue to dominate.
Reasons for the slowdown
There are reasons for the slowdown in China.
During a recent Horizons briefing, Legal & General Investment Management's chief investment officer Sonja Laud, said China had been following a "slightly different dynamic" than other countries following the first wave of Covid-19.
She explained: "They had their severe lockdown later than other countries and came out into normalisation a lot later.
"We are now seeing a balance sheet recession in terms of over-investment in property in particular over the past 10 years, which is being unwound.
"We have been cautious for a while on China and, based on our research, we think it is working through the excesses of the past 10 years."
Because balance sheet recessions are different to country recessions, normal stimulus will not work in the same way, although the government has expressed that it will be supportive, and it seems to accept this could be the start of a three-year process to unwind previous excesses.
But Laud was not worried. She said: "We believe China is in a stabilising phase rather than deteriorating".
In terms of the geopolitical situation and the tension between the US and China, "we are watching what is going on" but there is no reason for panic.
Foreign investment disappearing - or is it?
Foreign investors have also pulled money from the country.
In November, the annual Asia-Pacific Economic Co-operation gathering brought Xi Jinping from Beijing and Jo Biden from Washington to San Francisco.
While China can be a polarising topic in the US (as, doubtless, the US is in China), economists at asset manager Payden & Rygel "fear that polarisation might cloud investment judgment."
For example, they pointed to the recent plunge in foreign domestic investment in China, which some doomsayers have said is a sign of global corporations abandoning it.
"As usual, the story is more complicated", the economics team commented.
>We expect the market will remain range-bound in the near term.---Kelly Chung, Value Partners
A note from the team explained: "Sure, non-Chinese companies could be extracting retained earnings from existing operations out of China due to geopolitical fears.
"However, we'd posit another explanation: interest rate differentials. US interest rates are much higher than similar maturity instruments in China. US 2-year Treasuries yield nearly 5 per cent while China's equivalent offers 2.3 per cent."
Indeed, adjusted for the impact of re-invested earnings, actual FDI used in productive activities and new projects remain relatively stable.
So it is not crystal-clear whether this FDI plunge was because of yield chasing, or a sign that investors are voting with their capital and fleeing China.
Given the above - an outflow of FDI, a structural slowdown and nervousness about political tensions, what does this mean for the region and for global growth?
Laith Khalaf, head of investment analysis at AJ Bell, said China's economic performance has "significant ramifications for the wider Asia-Pacific region", largely because it is a major trading partner for many countries in the area.
He explained: "A robust Chinese economy can therefore boost the growth of its neighbours considerably, and an economic slowdown can have precisely the opposite effect.
"China has also been a significant source of investment in the region, particularly through its Belt and Road Initiative which has seen it investing in infrastructure projects across Asia, and more widely across the globe."
>China is also a critical link in global supply chains and local disruptions can lead to delays.---Laith Khalaf
The Chinese tourist dollar, or more accurately, tourist yuan, is also an important financial contributor to the surrounding economies, seeing as Chinese tourists form such a significant proportion of travellers in the region.
This is one reason why the late and protracted Covid lockdown created ripple effects across other economies.
More widely, he said the fact China has become an "economic powerhouse", means its influence on global finances has grown.
Economic shifts in China have global ramifications because of the significant part it plays in global trade as one of the biggest importers and exporters.
Khalaf explained: "As we saw during the pandemic, China is also a critical link in global supply chains and local disruptions can lead to delays, shortages, and cost increases for companies around the world.
"As one of the world's largest economies, China's growth rate also has a direct influence on global economic growth projections which anchor investor sentiment."
UK investment in China and Asia-Pac
Regardless of concerns relating to the way in which China's fortunes affect the rest of the world, assets in China and Asia-Pac funds indicate the UK investor still wants exposure to the region.
Table: Funds under management by sector as at October 2023
According to data from fund management trade body the Investment Association, current assets in the China sector stood at £2.1bn in October, and £33.5bn in Asia Pac ex Japan.
In 2018 this stood at £2.7bn and £27.6bn respectively.
Investors will also have exposure through emerging markets and global funds, so this is only an indication of demand for exposure to the longer-term Chinese growth story.
For Kelly Chung, investment director and head of multi-assets for Value Partners, China and Hong Kong equities present a mixed bag: not great in the short-term but maybe for those playing a longer game.
She said although the Chinese government "gave a clear message of policy support with its unexpected RMB 1trn bond issuance, investor confidence remains weak about next year’s economic growth.
"We expect the market will remain range-bound in the near term and believe it will take time for consumers and the market to regain their confidence."
Similarly, with tight liquidity and the RMB under pressure due to the strong US dollar, Value Partners expected limited upside in Hong Kong’s equities market.
Longer term, however, the return of Chinese tourism, a gentle stimulus programme rather than aggressive government action, and Chinese companies starting to curb their enthusiasm and repair their balance sheets might mean there are opportunities ahead.
Dzmitry Lipski, head of funds research, interactive investor, said: “We believe the economic backdrop remains positive.
"The government has showed it is prepared to stimulate the economy through monetary easing measures, such as borrowing rate cuts, and the Chinese consumer is expected to bounce back.
"This should also be beneficial for other regional economies, with millions of Chinese tourists travelling overseas each year."
He said the recovery in Chinese equities should continue, considering relatively cheap valuations versus history and other developed markets, combined with institutional holdings being the lowest in five years.
Therefore, the risk/reward ratio for Chinese equities is favourable. As the Chinese economy continue to mature and becoming more open, government policy changes and resultant volatility should be no surprise.
"Short term sell offs can create buying opportunities for long term investors. The long-term case for investing in China growth story remains intact", he adds.
As China is increasingly recognised as being a major driver of global growth, investors should consider having exposure to China when building a balanced portfolio, managers have urged.
>A robust Chinese economy can therefore boost the growth of its neighbours considerably, and an economic slowdown can have precisely the opposite effect.---Laith Khalaf, AJ Bell
Moreover, there are prospects for China starting to own more foreign stock.
China’s share of global equity markets is much smaller than its share of GDP, in contrast to other major economies and it is expected that over time this gap should close, and Chinese markets are likely to take up a significantly larger share of major equity benchmarks.
This will be both a boon for foreign exchanges - and another means of influence.
Yet according to the World Bank, while China represents nearly 18 per cent of world GDP, it only has 3 per cent of world market capitalisation - so its market has a long road ahead to deepen, mature and open up to more foreign investment.
Allan Cameron, investment director, Adam & Company Wealth Management, said with China now being the second largest economy in the world, it is "hard to ignore its growing global influence.
"China is also now the world's largest purchaser of commodities, and that will influence those exporting countries it does business with.
"But despite the current US/China tensions, China remains important globally for its well-established supply chains."
He agrees the region most affected by Chinese sentiment remains emerging markets, but with their growing exposure to global economies - for example, from commodity buying to manufacturing supply - he says "investors should have China (and not just the US) on their radars".
>China delivered what can best be described as a huge 'dummy'.---Rob Brewis, Aubrey Capital Management
And, with close trading links and strong, established supply chains, China’s economic performance will continue to exert regional influence.
Rob Brewis, fund manager at Aubrey Capital Management, said it had not been easy for fund managers with exposure to China earlier this year.
He said: "This year started with a further relative decline, as China delivered what can best be described as a huge 'dummy', worthy of the best winger at the current rugby world cup, and Taiwanese technology had its AI moment in the sun. But we are now clawing this back steadily.
"We have always prided ourselves in an ability to avoid the worst of the downside in emerging markets.
"Over the long term, much of our relative gains come from avoiding downside, but this quality has evaded us in recent years, mostly due to the challenges of the Chinese consumer."
But he said he was optimistic. He sees opportunity in the "return of this quality", where "normal service" seems to be returning in emerging markets.
It seems governments are not the only ones keeping a watchful eye on China, its impact on the Asia-Pacific region, and the rest of the world's economies: so, too, are investors, and investors like to play the long game.
Simoney Kyriakou is editor of FT Adviser