Riskier assets are still struggling to regain positive momentum this week as economic data paints a mixed outlook whilst earnings beyond the US appear more mixed. Given how far equity markets have rallied in a relatively short period of time it is not too surprising that investors are acting with some caution. As highlighted yesterday equity markets are showing classic signs of consolidation in the very near term. This will give momentum further time to correct from their still relatively overbought conditions.
This week, so far, the economic picture has been more mixed which has fuelled concerns over the sustainability of the recovery. Although, we could never ignore the US in the global growth scenario there is little doubt that China is also a primary driver for growth to expand. Interestingly, the view on China is becoming more mixed in the institutional world. In recent reports both Credit Suisse and UBS have predicted that China will raise banks’ cash reserve requirements as soon as the end of the year. Meanwhile, well respected Stephen Roach, Chairman of Morgan Stanley Asia noted in a speech this week; (when asked about the prospects of China raising rates in the near future) that “I don’t think that’s feasible over the near term given their concerns about economic growth”, Whilst Goldman Sachs is arguably the most positive compared to its peers with their Chinese economist recently noting that “We do not share the view of some sceptics that china’s growth is mostly reliant on government-led investment activities and therefore when those stimuli eventually fade, we will experience a double dip growth”.
Overall, China has continued to surprise the market. It was not that long ago that China’s goal of reaching 8% GDP growth this year was largely ridiculed by economists as unrealistic given the external environment. Instead, their Q2 and particularly Q3 8.9% growth have largely silenced those critics. With the Yuan still being pegged in a tight band China does have some competitive advantage over some of its peer group. This coupled with the authorities’ commitment to avoid another bout of negative growth would suggest that for some time to come China will remain a key positive driver of global growth.
Sources: Reuters: BBC: Bloomberg: Lawshare: Deutsche Bank (db): Proquote: Financial Times: Wall Street Journal: CLSA: Sharescope: Market News. Capital Economics: CNBC: Wikipedia:
