martes, noviembre 19, 2013

LAS IMPORTANTES REFORMAS anunciadas en China, ¿mala noticia para los mercados?

There are a few simple reasons why I think these bold reforms will be negative for markets. First, it's obvious that this will be net-negative for the majority of China-listed companies. Investment firm, Eastspring Investments, estimates 64% of profit from the Chinese stock market comes from sectors which have benefited from regulated pricing - such as banks and utilities. These sectors will get pummeled by the proposed reforms and consequently so will profits for the majority of Chinese-listed firms. That's bad for the local stock market.

More broadly, I don't think this reform agenda will reduce concerns about China's growing debt bubble. These concerns may actually grow. The bubble is a real problem which needs concrete, immediate solutions that this agenda doesn't provide.

Long-term, if the agenda's reforms are implemented in full, there's a greater chance of China growing in a more sustainable manner. That's undoubtedly a good thing for China. However, the switch to a more consumption-led economy will almost certainly mean much slower GDP growth. Over the past decade, investment growth has averaged close to 15%, while consumption growth has averaged about 9%. If you're committed to significantly slowing investment growth, then consumption has to make up some of the difference. And it's very unlikely too given it's already coming from a high base. Therefore, simple maths suggests that GDP growth slowing towards 5% is highly probable over the next five years. The world may not be prepared for this type of slowdown.