As the Chinese New Year rings in, Private Banker International asks experts for their outlook on China in 2019 (or the Year of the Pig!), amidst a slowdown in its economy and the lingering trade war with the US.
China has been undergoing an economic slowdown in recent months as the trade war with Donald’s Trump’s USA has started to pinch. However, certain figures remain bullish on the opportunities the world’s second largest economy.
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“Despite the brouhaha over a US-China ‘trade war’, there are many factors suggesting China could present the biggest opportunity for growing investments in 2019,” says Markus Stadlmann, chief investment officer at Lloyds Private Bank.
“For one, the cheap Yuan Renminbi makes exports to other countries more appealing and could help boost trade and commercial opportunities. China has plenty of room for fiscal stimulus to reflate growth in its economy and an administration that is increasingly comfortable with the markets. This should give further comfort to those considering investing in Chinese assets that are currently attractively valued.”
“While the world has been focussed on the dispute with the US, Chinese relations with the EU have improved significantly, painting a positive outlook for investors,” Stadlmann adds.
Alan Higgins, head of multi-asset investments at Coutts, however, is cautious on China.
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By GlobalData“China has had a huge build-up of corporate debt. It’s taken them from 150% of GDP to 250% in the space of eight years. The good news is the authorities are aware, but reduction of debt slows the economy.
“Can a slowing Chinese economy reduce corporate debt while keeping the economy growing strongly enough, so that people are employed?”
Chinese economy long-term
Higgins’ colleague, Mohammad Syed, managing director of global markets at Coutts, meanwhile is particularly optimistic about China’s long-term prosperity, not only in isolation, but as the core of the Asia-Pacific region.
“When you look at China as the world’s second-largest economy and a huge driver of Asia-Pacific, let alone the rest of the world, you simply cannot ignore it.
“The geographical footprint of China is enormous, so it is bound to trade with its neighbours just like the EU does. If it’s relevant for the EU, there’s no reason it can’t be of APAC as an economic bloc.
Syed speaks of the unprecedented rate at which China is capable of growing. “A city the size of Paris grows from scratch in China every five to six years, and that’s been happening for 15 years. They build the entire end-to-end infrastructure – schools, hospitals, roads, bridges – in five years.
“It’s difficult to keep up with. You look at what Alibaba does today: that will accelerate in five years.”
While the long-term potential of China is indeed mind-boggling, it is to be offset against the present reality of economic slowdown and tensions with its biggest customer, the USA.
Of Coutts’ short-term China plan, Higgins says that the bank’s exposure is largely towards Greater China, while identifying A-shares which represent secure avenues for exposure: small businesses as opposed to the likes of Alibaba and Tencent.
“An interesting analogy is with Japan,” Higgins notes. “Where was the place to be in Japan during their lost 20 years? It was small companies, which performed perfectly well.”
