The U.S. Federal Reserve's decision to delay raising interest rates, pending a clearer picture on the performance of emerging economies, has dismayed investors who believe the U.S. rate cycle and global markets are now hostage to Chinese fortunes.
Fed Chair Janet Yellen's comments that U.S. rates were kept on hold on Thursday partly over concerns that China's slowdown may be more abrupt than expected prompted some investors to fret that the Fed was becoming too reactive, and focusing on China would prolong current market uncertainty.
The thought of having to monitor China's notoriously opaque policy-making process to get a better reading of Fed policy and global liquidity has left investors flustered and dismayed.
"It's not clear what to watch," said Richard Jerram, chief Asian economist at Bank of Singapore. "Say, if the next China PMI is not that bad, is that reason for the Fed to go in December?" he asked, referring to the widely followed purchasing managers' index indicator of global demand.
"I don't know what the basis for their (Fed's) decision is anymore because they seem to have abandoned rigor. They seem to have become much more subjective, much more reactive, when policy is meant to be forward-looking," Jerram added.
While others said the Fed was merely buying time, waiting for improvement in domestic prices even while the U.S. labor market strengthens, analysts at Citi said the September meeting was a "bunker buster," and the Fed's new reaction function to global market developments will take time to comprehend.
Most frustration lies in the way policy is decided and communicated in China, the world's second largest economy — from the secretive, centralized policy-making process and doubts over how far to trust official data to the ruling Communist Party's heavy-handed market intervention. The People's Bank of China (PBOC) doesn't even say when and how often it reviews rates.
"People are concerned because in developed economies, generally, government intervention is very scary," said Zhou Hao, economist at Commerzbank in Singapore. "This is a kind of different mindset between different regulators in different countries. From a Westerner's viewpoint it's very risky."
Zhu Haibin, China economist at JPMorgan in Hong Kong, also highlighted investors' concerns over Beijing's ability to judge market response to its policies, as was seen during this year's stock market collapse.
Chinese stocks have fallen 39 percent since mid-June. A scattergun regulatory response has involved a series of rate cuts, a surprise yuan currency devaluation and back-tracking of measures on trading and stock issuance.
"Beijing is not doing a good job in policy communication. It is not transparent... So, from that perspective, policy regulators are still in a learning process," Zhu said.
Citi economists are pushing out the timing of a Fed rate rise, its first in almost a decade, to 2016, saying it will take time for uncertainties around China and the related slowdown in emerging markets to clear.
"The Chinese authorities have no track record of successfully dealing with such a structural slowdown, nor a track record of not exacerbating such a well anticipated economic weakness," Citi said.
That risks prolonging the uncertainty and market volatility.
"This means China and its regulators are now in the driver's seat and that isn't a thought that brings down uncertainty, quite the contrary," said Olivier d'Assier, Asia-Pacific managing director at risk management firm Axioma in Singapore.
"The PBOC is one of the least transparent regulators, and it appears now that it's the one that's going to influence a lot of the others."
"Fed-watching is a science and people have been doing it for decades. It's not the same in China. You can watch the PBOC, but you won't get any signal until they do something, and it might be something totally different," he said.
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