China will “muddle through” in Year of the Rooster

Chinese roosterFund managers gave a cautiously optimistic assessment of the Chinese economy as the country celebrates a New Year. “China is likely to muddle through for the foreseeable future,” said Matthew Dobbs, fund manager, Asian equities. He said a gradually depreciating currency, capital controls, $3 trillion of foreign reserves and its current account surplus would cushion China's economy in the face of a looming realisation that GDP growth is lower than the 6-7% claimed by the authorities. Gary Greenberg, head of emerging markets at Hermes Investment Management, was somewhat confident, predicting 12% earnings growth on equities which, accounting for an anticipated fall in the value of the renminbi, would amount to a high single-digit return for the MSCI China index. However, he said he had seen little evidence of necessary legislative and economic reforms. “Therefore we believe that China is on an unsustainable track,” he said. A note from Qinwei Wang, an economist at Pioneer Investments, challenged the last point, arguing that China has made good progress in financial and fiscal reform. He added that reform measures have accelerated since the summer. “Overall, it appears that it will be a challenge for China to return to 7% or above growth if the recent de-globalisation trend lasts, but the 6% growth range remains achievable over the rest of this decade,” he said. ©2017 funds global asia

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