👀 China's in trouble

What’s going on here?

China’s manufacturing sector stumbled again in December, churning out new worries for investors.

What does this mean?

China’s Caixin manufacturing purchasing managers index asks top executives how things are going at private and state-owned companies, and then scores their replies. A result above 50 suggests factory activity is growing, and a result below suggests it’s shrinking. In December, the figure unexpectedly dipped to 50.5 from November’s 51.5. That’s not great: economists were forecasting a rise to 51.7. The problem here is that the country’s exports have been dragged down by global trade uncertainties and looming tariff risks. To give sales a boost, manufacturers have slashed prices – but that’s piled even more pressure on an economy already grappling with its longest streak of deflation in a quarter-century. Not surprisingly, China’s job market is now looking grim too: the employment index fell for a fourth straight month.

Why should I care?

For markets: Unhappy new year.

Sure, the manufacturing activity indicator is still above the crucial 50 level, but investors aren’t buying the optimism. China’s blue-chip stock index, the CSI 300, tumbled 2.9% on Thursday – its worst New Year’s trading day since 2016. Meanwhile, yields on 10-year government bonds hit a record low of 1.6%, suggesting that folk expect the country’s deflation to stick around.

The bigger picture: Risk and reward.

Emerging markets like China are famously volatile. They may offer high potential returns, but they also carry some heavy risks. Just look at last year. Argentina’s stock market soared 63% in US dollar terms as its new president pushed through tough reforms. Markets in Mexico and Brazil, meanwhile, saw steep declines of roughly 30% each. The lesson? These markets can deliver big wins, but they’re not for the faint of heart. So make sure your investments match your risk tolerance and long-term goals.

What’s going on here?

British home prices closed in on their all-time highs at the end of the year – news that could raise the roof for the country’s homeowners.

What does this mean?

Home prices notched a 4.7% annual rise in December – the fastest growth since October 2022 and well pacier than the 3.8% that economists had forecast. The average home price now sits at £269,426 ($334,640) – just shy of the all-time peak hit in 2022. Housing supply shortages and improving macroeconomic conditions have helped boost sales, but a big driver in recent months has been a temporary cut in stamp duty land tax, which ends in March. That’s the irony: buyers rushing to save on taxes are driving up the prices they’ll pay. Classic.

Why should I care?

For markets: The affordability crunch is real.

Brace yourself: according to the latest data from the UK’s Office of National Statistics, only the richest 10% of households in England could afford to buy a home last year. And in London? Forget it. Prices are officially out of reach for every income group. This isn’t just bad news for buyers – it’s a hit to the broader economy. When people spend more of their money on housing, they’ve got less left over for everything else. And in an economy increasingly propped up by the wealthiest, that makes for a shaky foundation.

The bigger picture: The housing market’s own thermometer.

The closely watched home price-to-income ratio can be key for spotting housing bubbles – a bit like the price-to-earnings ratio for stocks. The US Federal Reserve uses it to detect “exuberance”: when prices move way beyond value. And right now, it shows that market optimism – though not as wild or widespread as before the global financial crisis – has crept to worrying levels in several places. So it’s not a bad time to remind yourself that gravity often has a way of pulling prices back down to Earth.