In the latest edition of Global Perspective Standard Life Investments, the global investment manager, examines the range of complex issues facing the Chinese authorities, warns about major downside risk, and looks ahead to a series of important structural reforms which are required to rebalance growth.
Standard Life Investments’ report highlights that economists’ forecasts for Chinese growth are likely to be downgraded further over the next year. The investment manager believes that while a genuine near-term hard landing is still a risk rather than a central scenario, the risks have increased and the widespread confidence that the central authorities can effectively choose how quickly the economy will grow has been exaggerated.
Jeremy Lawson, Senior International Economist, Standard Life Investments, said: “The growth model that has served China so well over the past two decades is certainly breaking down and there is more uncertainty that the improvement in employment prospects and real incomes that have been promised will ultimately come through. Moreover, at some point a “reset” may be necessary to put the economy on a more sustainable path, even if it means a short period of very weak growth. The implications of this new reality are currently being priced into financial markets; our House View has been tactically Light in emerging Asian assets for some time. As far as the Chinese stock market itself is concerned, our view is that as long as a major crisis is averted, then much bad news is already priced into the local stock market.”
The nature of the structural reforms that are announced at this autumn's party conferences will be an important trigger for investors to assess where next to position their portfolios for the China story. A cautious approach to reform may help prop up growth in the very near term but it would probably come at the cost of making internal imbalances worse and thus the eventual unwind more economically and socially disruptive.
To view the full report please click on the link bellow : Report of Global Perspective