However, it seems like that is still one segment of the world that is happy that the US government is not functioning, and that is the emerging markets.
The Asian Markets, buoyed by positive news from China, are outperforming the Markets of the Western world at last, after an entire year of dreary performance. However, shouldn't the Asian Markets be more worried about the government shutdown as the USA remains the most important market for them.
Seems like the unfortunate US political situation is actually benefiting the Asian markets. There are a few reasons which I can think of but here are two reasons which seem more obvious.
Reason 1: Tapering Delayed Thanks to Shutdown
The Emerging Markets suffered a major outflow of capital as investors were worried that a rising US Dollar and interest rates will lead to a potential debt and currency crisis in Emerging Markets. Many developing nations have been going on a spending spree, thanks to the easy money and low interest rates caused by a wanton expansion of credit (money printing) by major developed nations. The shutting off of the liquidity tap made many investors nervous about the debt levels in many Emerging Market economies. Now that the US government has been shutdown and it is predicted that a week of the shutdown will shave off 0.1% of US's GDP, it became much more probable, that the Federal Reserves has to come in to rescue the US economy again, as a result of the dysfunctional US government, by delaying the QE tapering process. The longer the QE program stays, the better that the Emerging Economies will benefit, in the short term. However, this will probably create a bigger bubble in Emerging Markets in the long term.
Reason 2: Investors Realized that Emerging Markets Have Value
The Emerging Market equities have underperformed US and Europe by at much as 15% in the past 1 year. In theory GDP growth = Stock Market growth, but for the last 1 year, we are seeing a different picture. US and Europe were having no to low growth and yet their equity markets soared ahead. The Emerging Markets, even with the concern of a potential asset bubble, are still producing decent economic growth and yet the pathetic performance of their stock markets are in no way, a good reflection of their growth. The US Government shutdown essentially peeved off global investors from the US Stock market and they turned their attention else where in the world, looking for value. Now, where else in the world has pretty decent growth and yet the value of the stock remains attractive?
All in all, the US government shutdown has been pretty good to Emerging Markets so far and it has turned the eyeballs of the international investors towards Emerging Markets. Perhaps Emerging Markets have a chance to catch up with the performance of the Western Markets by end year afterall!
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