Share Name Share Symbol Market Type Share ISIN Share Description
JP Morgan Chinese I.T. LSE:JMC London Ordinary Share GB0003435012 ORD 25P
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  -5.00p -1.92% 254.75p 254.75p 258.00p 259.75p 259.75p 259.75p 36,396 16:35:15
Industry Sector Turnover (m) Profit (m) EPS - Basic PE Ratio Market Cap (m)
Equity Investment Instruments 0.0 1.2 1.8 142.3 191.08

JP Morgan Chinese I.T.Plc Share Discussion Threads

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Those are all views of China and its prospects. JMC has risen strongly since the turn of the year, but how does it compare with other China funds?
Economists have upgraded their forecasts for China’s economic growth this year and project consumer inflation will continue to moderate. Analysts projected faster economic expansion in each of the next four quarters in a Bloomberg survey from April 18 to 25 compared with forecasts in the March poll. They also reduced their expectations for factory and consumer inflation this quarter. Growth in the world’s second-largest economy unexpectedly picked up to 6.9 percent in the first quarter, clocking its first back-to-back acceleration in seven years, while industrial output advanced, factory prices surged and investment recovered. The central bank has transitioned to a tighter policy framework, with increases for some bank lending rates.
The Chinese economy is expected to continue to stabilize in 2017 as several factors will combine to support the trend, a Chinese economist said Thursday. Domestic demand is expected to improve in 2017 as there is still much room for infrastructure investment to grow while manufacturing investment might also pick up, said Li Wei, head of the Development Research Center of the State Council. The country's export growth may enter positive territory this year, he said during the Center's national policy consultation work conference held in the southern city of Shenzhen. China's economic growth held steady in 2016, with improved power and crude steel output as well as auto sales, Li highlighted. The producer price index, which measures the cost of goods at the factory gate, has stayed in positive territory since September last year, when it ended a four-year streak of declines thanks, in part, to the government's successful campaign to cut industrial overcapacity. China's major industrial firms reported an 8.5 percent profit increase in 2016, reversing the 2.3 percent decline registered in 2015. Meanwhile, China created 13.14 million new jobs for urban residents, exceeding the target of 10 million. "All these signs showed that the imbalance between supply and demand is easing and the quality of economic growth is improving," said Li. Besides, major international agencies forecast world economy would edge up this year. However, Li also warned of uncertainties in global markets and suggested that concrete steps should be taken to guard against financial risks. The World Bank in January kept its forecast for China's economic growth rate for 2017 at 6.5 percent, saying that the economy will continue sustainable growth as it is rebalancing from manufacturing to services, despite reemerging concerns over the property market. The Chinese economy grew 6.7 percent year on year in 2016, the lowest reading in nearly three decades, but within the government's target range.
China Will Avoid a Bank Crisis, Reach High Income Status: Morgan Stanley Bullish analyst report details long-term outlook for economy China’s economy forecast to attain high income status by 2027 China will likely avoid a financial crisis and is on track to reach high income status by 2027, according to a new Morgan Stanley report on the nation’s longer-term prospects titled "Why we are bullish on China." The sweeping outlook comes amid growing concern over China’s surging debt levels, slow pace of reforms and the impact of a potential trade spat with the U.S. While acknowledging those concerns as legitimate, the analysts point to the country’s increasing shift into high value-added manufacturing and services that will play a central role in boosting per capita incomes to $12,900 over the next decade from $8,100 now. If China manages to pull off that feat, it will join South Korea and Poland as the only large economies with a population of over 20 million to achieve that over the past three decades, Morgan Stanley said. The World Bank defines high-income economies as those with a gross national income of at least $12,476 per person. There are other positives, too. Consumption and services are increasingly powering growth and proposed structural reforms such as the closure of uncompetitive state-owned enterprises will clear the way for new, high-value added industries in areas such as health care, education and environmental services, according to Morgan Stanley. That would spur the creation of a new generation of Chinese multinational corporations with significant presences both at home and abroad. Low Risk: At the same time, the risk of a financial shock remains low even though overall debt soared to 279 percent of the economy last year from 147 percent in 2007. That’s because borrowing has been funded by China’s own savings and been used for investment. Strong net asset positions provide a buffer along with an ongoing current account surplus, high foreign reserves and the absence of significant inflationary pressures that would destabilize the financial system, according to the report. A one-off devaluation of the yuan is also unlikely though the currency will likely weaken further, according to Morgan Stanley. Indications that China’s leadership are shifting their focus from stimulating the economy to reining in financial risk bolsters their upbeat case, the analysts said. "The most significant development on the policy front is that policy makers are now signaling a willingness to accept slower rates of growth, and place more focus on preventing financial risks and asset bubbles, indicating that they would not protect growth at all costs, often with the use of investment of a low return nature," the analysts wrote. Debt Pile: Still, there are risks. Much will depend on the commitment to tackling the debt pile and reshape state-owned enterprises. It’s likely that China’s debt management will follow a path similar to Japan’s, although economic growth will compound at a much higher rate over coming years. Morgan Stanley sees growth at an average of 4.6 percent in 2021-2025. That’s less than half the 9.6 percent average growth rate over the past three decades. "With a starting point of lower debt, (China’s debt to GDP today is where Japan’s was in 1980) and per capita levels (China’s per capita GDP (PPP) today is where Japan’s was in the mid-80s)," the analysts wrote. "By not allowing for a sharp appreciation of its currency as Japan did after the Plaza Accord, China today is arguably better positioned to still achieve growth rates that can outpace global growth."
China is capable of achieving steady GDP growth this year despite global uncertainties, according to Standard Chartered Bank. "We expect China to continue to set its GDP growth target at about 6.5 percent for 2017 and the world's second largest economy could grow 6.6 percent this year," Ding Shuang, chief Greater China economist with Standard Chartered, told Xinhua in a recent interview. Ding pointed out that U.S. policies towards China and elections in post-Brexit Europe might complicate the international environment for the Chinese economy, while domestic slowdowns in the property and automobile markets might drag on consumption growth. China's real estate market will see slower sales pace as tightened regulations began to bite, while the sales of passenger cars showed signs of contraction by dropping 1.1 percent year on year in January. However, Ding said that other engines of economic growth were gaining steam in China. He said that the service sector would grow faster in 2017 as Chinese would demand better entertainment, health care, education and travel experiences, which could contribute to about 60 percent of GDP. Meanwhile, China's exports seem to be restoring momentum after a subdued performance last year. The country's foreign trade volume beat market expectations to grow 19.6 percent year on year in January. In addition to a lower comparison base and Spring Festival effects, the global economy is showing positive signs as the latest PMI figures in the United States and some European countries showed growing factory and service activities, according to Ding. He added that the yuan's previous depreciation would gradually help lift export performance. Ding pointed out that to sustain steady growth at about 6.5 percent, China would still have to combine effective policy tools. "While China decided to take a prudent and neutral monetary stance, the government needs to take more proactive fiscal policies to help prop up growth," Ding said. "China's debt level is still controllable and the government can lift the fiscal deficit-to-GDP ratio from 3 percent in 2016 to 3.5 percent this year.
Where is China’s economy headed in 2017? Stephen Green, economist at Capital Group, takes a closer look at the Chinese economy and discusses some of the challenges for 2017. Stimulus effects still feeding through the economy: I am more optimistic than most about the direction of the Chinese economy. The consensus view is that China’s economy will lose momentum in the first quarter of this year as the red-hot housing market cools and government stimulus wears off. There is also the risk of tense trade relations with the US. That said, in my view China’s economy can continue to grow along its current trajectory in the first half of the year, which is 6.5 per cent according to official government figures. Here’s why: There are enough new investment projects in the pipeline to support economic growth during the first half of 2017. Construction firms, for instance, reported order growth of greater than 30 per cent during the first nine months of 2016. This included a mix of big and small projects, ranging from real estate to infrastructure and manufacturing. The good news is projects tend to last two to four years. And by my count, this activity marks the greatest acceleration in new project starts since 2009. This should be supportive for commodity prices and global mining companies through the first half of 2017. There is a lot of scepticism out there right now about private sector capital expenditures, too – but there are early signs capex is recovering, with real interest rates down and some sectors showing obvious capacity shortages. To be sure, I do expect growth to slow in the second half of this year, especially with mortgage credit slowing and home sales having flattened. Pockets of strength in the housing market: There is a lot of bearishness about China’s housing sector. Home sales skyrocketed in 2016, as did prices, with approximately $1.4tn in new housing sold. Worried about a property bubble, government authorities are curbing incentives and rolling out buying restrictions as well as stricter lending requirements in some larger markets. This is certainly affecting activity in China’s 30 largest cities, where sales fell 20 per cent year on year in November. The market’s expectation now is that new housing starts will fall, denting gross domestic product growth and demand for commodities such as iron ore, copper and cement. I agree that sales will slow, but not to the degree that most suspect. Outside of the 30 largest cities, sales remain stronger due to affordability and the absence of government purchase restrictions. Immigration into smaller cities from surrounding rural areas will continue, pushing up the urbanisation ratio from its current 55 per cent level to nearer 70 per cent to 80 per cent over the next two decades. A lot of urban households want to upgrade their apartments, too. Interest rates also remain low, which should continue to support sales across most markets. Furthermore, we have moved past the horror stories of ghost cities. Inventories continue to shrink nationally and housing stock in the bigger cities is at pre-glut levels. Inventories remain high in many smaller cities, though, so this is still a challenge. Along those lines, new housing starts should continue to grow for the next three to six months, I think. Historically, housing accounts for twice the commodities demand of infrastructure, so I am watching this closely. While cautious, developers appear to be building more again. Currency pressures, but no big devaluation: The Chinese renminbi is under pressure from capital outflows, the prospect of faster US interest rate increases in 2017, and worries that President Donald Trump will follow through on his pledge to slap tax penalties on imports. Despite these headwinds, I think there is a limited chance the People’s Bank of China (PBOC) will stray from its stated policy of steady depreciation and will pull the trigger on a big one-time devaluation. There are just too many risks for Beijing in that course of action – and this year, especially, no one has incentives for taking that risk. If the dollar stays strong, I do anticipate more aggressive measures by the PBOC to combat capital flight, making it more difficult for individuals and companies to move money outside China. The central bank will also keep tapping foreign currency reserves to prop up the renminbi, which fell more than 6 per cent against the dollar in 2016. Reserves currently stand at $3tn. While some $2tn is liquid and available for use, in my view Beijing would get very nervous if reserves shrank by a billion during the course of the year. I expect the renminbi to weaken some 6 per cent against the dollar this year, but there are risks. Until dollar strength abates, it’s going to be a bumpy ride for the renminbi. Get ready for China’s biggest turnover in political leadership in a generation: In the fall, China’s 19th National Party Congress will convene, during which five of the seven members of the Politburo Standing Committee – the inner sanctum of power – are due to retire. Maybe it turns out to be only four retirees – we’ll have to see. Close to half of the Politburo (25 members who influence policymaking) will also be reshuffled due to retirements and promotions, while the Central Committee will see large numbers of its 205 fulltime members step aside. That makes it a huge year politically. What unfolds will shape the country’s economic priorities for the next five years. For president Xi Jinping, this is a prime opportunity to strengthen his political clout. For one, I do not expect Xi to name a successor, thus setting himself up for a third term that would run through 2027. There is also a possibility a new premier will be named. That person could be Wang Qishan, a current member of the Politburo Standing Committee who spearheaded the unprecedented anti-corruption campaign. If he fills that role, he would be responsible for economic policies. This would have several implications: Wang is believed to be market-friendly, and would have the bureaucratic power to push some tough reforms through. This may include a major recapitalisation of the big state-owned banks to flush out the bad loans, and privatising some of the debt-heavy state-owned enterprises. That said, any such program would have to be approved by Xi – and his real intentions are very hard to read, though there is much evidence to suggest he believes that strong party control of the economy is vital to China’s continued rise.
America versus China: A changing of the guard - By Jan Dehn head of research at Ashmore: It has been on the cards since 2008/09. China has been preparing for it for years with aggressive reforms, even at the expense of slower growth. The US and other developed economies have been drifting inexorably towards it on a wave of myopia, neglect of reforms, debt issuance and, lately, a lurch towards economic nationalism. And so we have finally arrived at the inevitable turning point, when China formally took over the mantle from America as the world's undisputed leader on economic issues. Revealing a shocking degree of economic illiteracy, US president Donald Trump claimed in his inaugural speech that "protection will lead to great strength and prosperity". America's economic abdication: His bleak, defensive and atypically American vision of pessimism and defeatism was a de facto abdication of America's erstwhile role as undisputed global leader on economic issues. By contrast, Chinese president Xi Jinping's message at Davos spelled out a positive and ambitious agenda of openness and support for globalisation with the words: "Protection is like locking yourself in a dark room." The irony of the contrasting positions adopted by Xi and Trump was not lost on the press: here was the leader of Communist China standing up for free markets, while the leader of the free worl' proposes to turn his country's businesses into the equivalent of protected French farmers. In reality, however, China has been liberalising its economy for decades. The hand-over of global economic leadership will severely challenge the finance industry, which is usually desperate to be seen to be on the side of power. The US economy is still bigger than China's, and global financial markets are far more invested in the US than in China. The finance industry now finds itself in the uncomfortable position of having to justify the usual bullish stance on the US despite the fact that even half-educated economists can tell you that the policies under consideration by the Trump administration will have a negative impact on the economy. We think it is a fool's game to try to suck up to policymakers if their policies are bad. Far more businesses will lose than gain. In the 1970s, the US tried in vain to protect a car industry that produced enormous gas-guzzling vehicles against imports of smaller, more fuel-efficient and ultimately more sophisticated Japanese vehicles. "Eat your Japanese car", said the bumper stickers, yet today we all drive smaller, better, more economical cars. In retrospect, it is clear that Japan was not to blame. The Japanese cars were just better. Imports were not the problem either. After all, they just provided consumers with the goods they really wanted. Protecting dying industries can save jobs in the short term, but protectionism becomes ridiculous in the longer term. For example, suppose the good people of the Stone Age had insisted on defending the flint-axe industry as the Bronze Age beckoned. China's relentless reform: It is obvious that no amount of protection would have saved the flint-axe industry as times and technology moved on. It is the same situation today: American industry today needs to man up or shut down, not be kept alive by artificial means at huge cost to the rest of the economy. Clearly, China and the US are setting out on paths that will accelerate China's economic hegemony, while the US is now directly undermining its own economic future. China's path is one of relentless reform, while America's is one of relentless stimulus. China is opening up as America is closing. Investors and the rest of the world should take notice of these contrasting developments. Leadership is not free. Leadership requires bravery. Leadership demands the strength to hold firm to principles that are known to be right, even in the face of populism. China has displayed precisely these characteristics in recent years, when, to the puzzlement of many, China has insisted on reforming even at the expense of a slowdown in growth. Perhaps now China's path will begin to make sense to the China-detractors. The truth is that China astutely recognised that 2008/09 was a debt crisis in the Western world, and that the widely adopted policy response - yet more fiscal spending and money-printing rather than tackling the underlying problems of excess debt and declining productivity - would ultimately lead to a more hostile environment for Chinese exports. Indeed, regardless of whether the hostility was due to diminishing demand in the West, weaker currencies due to quantitative easing and inflation, or protectionism à la Trump, China's critical insight was that American policy would ultimately seek to pass the cost of its own policy mistakes onto foreigners. This insight prompted China to commence an enormous reform effort to try to rotate its economy's growth drivers away from exports towards consumption, even if this required extremely tough reforms. China has therefore pushed ahead relentlessly with interest rate liberalisation, price liberalisation, painful productivity-enhancing reforms and capital account liberalisation. And the reforms will continue. This is an opportunity for China detractors to stop and reflect anew: China was early and absolutely right in expecting hostility from the West and China was prudent to start to prepare early. China to overtake the US by 2027: Unlike Mexico, which continued to cling onto the flawed notion that the US would always be a force for economic good - and is now paying a heavy price for its naïveté - China read the economic tealeaves exactly right and is far better prepared as a result. There is no doubt that global economic leadership will now gravitate to the East. In addition to exercising leadership of key economic issues, China is well underway to becoming a true economic giant. Based on the International Monetary Fund's forecasts for Chinese and US medium-term real GDP growth rates of 6 and 2% respectively, we estimate that China's economy will overtake the US economy within 10 years (by 2027). Using PPP-adjusted per capita GDP and scaling up by the ratio of the Chinese population to the US population, we estimate that China's economy will be 4.1 times larger than the US economy by 2050, and even without PPP-adjustment China's economy will still be 2.4 times larger by 2050. The rise of China will have many profound implications. The world's currency and bond markets like to benchmark themselves against the largest markets. One obvious implication is therefore that CNY and the Chinese government bond market will replace the dollar and the US Treasury market as the world's main benchmarks for FX and fixed income. While China's rise to unassailable economic and financial supremacy will be impressive in their own right, we think it is the rise of China as a consumer nation that will really take the biscuit. China's savings rate is likely to decline from 49% today towards single digits by the middle of the century. This means that China will experience the largest consumption boom the world has ever seen, as consumption rises even faster than GDP. If America turns in on itself in some forlorn effort to cling on to former glories, the once legendary US consumer will be far less impressive in the future. All this matters so much because global trade relationships are strategic in nature. It takes years of building trust to create truly deep and lasting trading relationships. From the very highest level of executive power, the pathways for these two nations have now been laid bare for all to see. China is going to win and is inviting the rest of the world to ride along.
China is a vital driver of global growth, but its economy expanded only 6.7 percent in 2016. Manufacturing activity in China slowed slightly in January, official figures showed on Wednesday, as the world's second largest economy shows continued signs of stabilising. The official purchasing managers' index (PMI), which gauges conditions at factories and mines, came in at 51.3 in January, down from 51.4 the previous month. The key manufacturing sector had been struggling in the face of sagging world demand for Chinese products and excess industrial capacity left over from the country's infrastructure boom. But an upturn in the housing and construction markets thanks to cheap credit — following a series of monetary easing measures — has contributed to a sharp rebound in manufacturing activity. Beijing has said it wants to reorient the economy away from relying on debt-fuelled investment and towards a consumer-driven model, but the transition has proven challenging.
Thanks again.
China PPI is at its highest level in >5 years The falling cost of many goods has been deflationary for China and for consuming nations, but this is now changing. China’s latest PPI figures released yesterday rose 5.5% yoy in November and vs 4.6% forecast. A weaker renminbi has raised the cost of energy and other imports raising feedstock prices but we reckon better quality products may also be a factor. Credit expansion held up strong in Dec beating market estimates and supporting economic growth momentum. Annual auto sales numbers released today showed total vehicles shipments jumped 13.7%yoy to 28m units in 2016 compared with a 4.7% increase in the previous year. An acceleration is attributed to a tax cut on small-engine cars.
The Board is recommending a dividend of 1.60 pence (2015: 1.80 pence) per share in respect of the financial year ended 30th September 2016 given the Company's return on its Revenue Account. Subject to shareholders' approval at the Annual General Meeting, this dividend will be paid on 8th February 2017 to shareholders on the register at the close of business on 16th December 2016.
Emerging markets recover, but now for the hard part by Michelle McGagh: Emerging markets have been strong performers this year, but now earnings need to improve, say investment trust managers. Emerging markets have only entered the first leg of a recovery and company earnings need to improve before a genuine turnaround can take hold. Emerging markets have had a rocky few years but investments trusts focused on the sector are among the best performers of 2016. Shares in these trusts have risen 31% on average since the start of the year. The outcome of the EU referendum in June provided a further boost to emerging market investments as the value of sterling fell, however, it is only just the start of the recovery. Carlos Hardenberg, manager of the Templeton Emerging Markets investment trust, said the ‘pendulum was swinging back’ in favour or emerging markets. Shares in the trust are up 42.8% this year, making up all the ground lost in a torrid 2015. Hardenberg took control the fund from veteran emerging market manager Mark Mobius last September. ‘The market always over reacts when the general consensus turns negative,’ said Hardenberg. ‘Share prices are more volatile than underlying earnings. We are seeing industrial production, as a measure of recovery, increasing in emerging markets...if you go country by country, there is a healthy degree of orders. ‘GDP growth is slowly improving and over the next two years markets like Russia and Brazil will see the biggest relative improvements.’ Omar Negyal, manager of the JPMorgan Global Emerging Markets Income trust, targets income rather than capital growth in his fund and said the real recovery in emerging markets will have begun when company earnings stabilise. ‘What we are seeing in emerging markets is the first leg of recovery,’ he said. ‘China is stabilising and there is an improvement in trade balances in emerging markets. For the second leg [of recovery] to come through, earnings have to start to improve. We are at the start of that,' he said. He said improved earnings would help the ‘rerating of high yield equities in the asset class’. China has been the main problem for emerging markets, with slowing growth dragging the sector down. Hardenberg holds 19% of his trust in the country. He said there were still concerns around housing and ‘over capacity in steel and cement that will have to be dealt with in future’. ‘The big negative for emerging markets is the overall impact of global uncertainty and demand and supply in commodity markets,’ said Hardenberg. Former chief economist at the International Monetary Fund Ken Rogoff has also warned of the threat China poses to the global economy due to its high levels of debt. He said there was ‘no question’ that ‘China is the greatest risk’. ‘China has been the engine of global growth,’ he said. ‘China has been really important. But China is going through a big political revolution. And I think the economy is slowing down much more than the official figures show,’ he said. However, the good news is that sentiment towards other emerging markets is becoming more positive and local emerging market currencies are ‘slowly recovery’ and companies are finally keeping ‘capital expenditure down and concentrating on cost management’, said Hardenberg. Emerging companies in mid and small cap - there are more opportunities there,’ said Hardenberg, adding that many tech companies - of which he has been a fan - were ‘leap-frogging’ more established businesses. In particular, Hardenberg said he looked for companies ‘that have sustainable business models in an area with a high barrier to entry’. ‘We are expecting that emerging markets will see a sideways development over the next 12 months and there is a clear risk from China...and there is some danger already priced in,’ he said. Although Asia is the largest geographic weighting in his trust, Hardenberg said he did not ‘have exposure to Chinese banks or insurance companies’ because of their poor asset quality and concerns the companies were ‘hiding how they are restructuring’. China is the concern for Negyal, whose trust has mounted a recovery almost as impressive as Templeton's this year, with the shares up 38.6%. ‘China is very important for emerging markets at a quarter of the asset class and for the rest of the emerging markets it is vital... because it drives the rest of the emerging markets via trade links,’ he said. ‘That’s commodity prices in Latin America or manufactured goods in the rest of Asia. There are very few emerging markets that are isolated from China. From an economic perspective, Latin America will benefit from stabilisation [in China].’ Also important for Negyal is for emerging markets ‘to re-enter growth territory’ to ensure companies can continue to pay dividends. ‘Emerging market dividends and earnings have been under pressure,’ he said. ‘The near term outlook for dividends is still a concern and it is something we want to be cautious about but in the mid and long-term growth opportunities can be seen as well,’ said Negyal.
Thanks a lot indeed. I am thinking of buying both funds for my SIPP.
The fund managers at both JMC and FCSS did very well and significantly outperformed versus the Chinese market index. The NAVs of both trusts ate near record although the Chinese Shanghai market index has dropped from a peak of over 5000 to about 3000. This shows there are very good trading opportunities in Chinese markets.
Anyone hold here or at Fidelity Chinese Special Situations?
Looking at these.
Is China really that bad? James Dowey, chief economist at Neptune Investment Management, argued the market's reactions to China's troubles since the start of the year had been 'over the top'. He argued that investors were wrongly viewing China's devaluations of its yuan currency as a symptom of a government that had 'simply lost control, with currency weakness being a manifestation of the demise', rather than a response to the strength of the dollar. While a weaker yuan would also hit China's trade partners, he said the scale of the global sell-off ignored the fears over China's slowing growth that had already been priced into emerging markets. 'With emerging markets equities at one of their cheapest-ever levels in history, it is not as though the market is in need of a reality check on emerging markets,' he said. Craig Botham, emerging markets economist at Schroders, also focused on China's currency devaluations as the key issue for global markets. China's stock market volatility was not a sign of economic weakness but of the fear that had been generated by the imminent expiry of a ban on share sales by large investors and the failing of the country's 'circuit breaker' trading suspension mechanism. Recent economic data for the country, although weak, meanwhile did not deserve too much weight, 'particularly given the pollution-related shutdowns which likely weigh on manufacturing activity'. The Chinese authorities' consistent devaluations of its yuan were more significant, he argued, in their potential to export deflation into other areas of the world, particularly emerging markets. He said his 'base case' was that these devaluations were merely aimed at maintaining a stable exchange rate. But a more dangerous devaluation, motivated by the Chinese authorities' fears over growth or deflation, was a 'definite risk'.
CREDIT SUISSE: China risks 'losing control' of the economy: The risk of a "severe correction" for China has "grown substantially", according to Credit Suisse. The investment bank had forecast a continued managed slowdown of GDP growth in 2016. But in a note sent to clients this week, fixed income Ric Deverell and his team say that fears are growing that Beijing is losing control of the economy. The perception that it is losing control could, in turn, hit real economic growth as it dents consumer and investor confidence. Deverell and his team say: Put simply, recent policy announcements related to inter alia equity markets and the currency have added to the sense that policy makers are no longer fully in control of their own destiny. China has been throwing the kitchen sink at its stock market in recent weeks to try and prop them up, with limited effectiveness. Meanwhile, China is also fiddling the yuan fix — a surprising move that is confusing people. It looks like its getting harder and harder for Beijing to paper over the cracks in its creaking economy. The big issue that China is facing is a structural slowdown, Credit Suisse says. Growth rates are reverting to the norm after a temporary, one-off boost in the 2000s thanks to China's entry into the World Trade Organisation. The idea that China's economy is cooling isn't new, but a combination of low oil prices and government tinkering have caused concerns to blow up once again, Credit Suisse says. Analyst Dong Tao writes in the note: Much of China's turbulent start to 2016 can be attributed to policy relating to both the economy and the currency. There is growing popularity for “supply-side economics” among decision makers in Beijing. Although this is positive in the long run, it is negative for growth in the short run. The focus is on the elimination of excess industrial capacity, reduction of housing inventory, and financial deleveraging. That is under way. Steel mills, cement factories, and coal mines are being closed. Anecdotally, however, workers from the closing factories are not being laid off (some chose to retire) but are being transferred to other surviving SOEs [state owned enterprises], meaning that other factories face additional costs. Infrastructure investment is still slowing. And the anti-corruption campaign continues, leaving more SOEs, banks, and local government demoralized and unwilling to lend or spend. China is hoping a rise in consumer spending can help make up some of the lost growth, providing a soft rather than hard landing. As a result, the government is trying to "rebalance" the economy away from things like raw material production and manufacturing towards more sustainable jobs. But Credit Suisse is skeptical that this rebalancing will work. Here's the bank (emphasis theirs): While the challenges to investment and production are now well known, if not understood, many believe that China can offset the weakness by increasing the pace of consumption growth. Although there is no doubt that consumption remains a relative bright spot for China, we think that it will be difficult to increase the pace of consumption growth at a time when investment comes under further downward pressure. All this is bad news for the rest of the world, as a slowdown in China has huge knock-on effects for confidence elsewhere. Markets around the world have been tanking over the last two weeks, with China a key concern.
China experiences more growing pains - By Graham Smith: The evolution of China’s stock markets continues and, it seems, it’s not always an easy path to tread. Over the past year, Chinese regulators have introduced a number of reforms to make stock markets more efficient. However, the one that became a significant factor earlier this week – the newly introduced “circuit breaker” – seems to have backfired. The idea of the circuit breaker is to halt trading in shares when prices fall past a certain point during a single trading day. That happened in China’s domestic stock markets in Shanghai and Shenzhen on Monday, following the release of a survey of business sentiment indicating that Chinese manufacturing contracted for a fifth successive month in December1. It happened again on Thursday, after China’s central bank fixed the value of the yuan about 0.5% lower against the US dollar and investors sold shares one day ahead of the planned expiry of a ban on major shareholders selling their stakes in listed companies2. There are a number of problems with circuit breakers. In markets that are naturally volatile especially, daily drop limits can get hit in the absence of any real change in the fundamentals. The suspension of trading can reinforce a pent-up demand among short-term investors to sell at the next possible opportunity. The essential problem is that interventions imposed by circuit breakers tend to delay rather than accelerate the natural path that markets would otherwise travel to find their “true level”. Similar difficulties arose during the global financial crisis, after regulators in the US and Europe introduced bans on short selling (the mechanism by which investors sell shares they do not own in the hope of buying them back at a lower price later). Domestic stock markets in Shanghai and Shenzhen, which soared during the first half of last year, partly in anticipation of foreign investors being allowed to invest in them, have proven vulnerable to swings in sentiment and bouts of selling ever since. A lack of liquidity in these markets this week caused a spill-over of selling into the more easily traded Hong Kong market too. From a fundamental perspective, it’s unlikely that anything much has changed in China since the end of last year. We know already that growth has been slowing for some time, largely because the government is encouraging a shift away from lower quality, debt-fuelled investment towards a services-orientated, consumer economy. This means better quality growth, but a bit less of it. How many of us will have noticed the labels on our goods changing from China to Vietnam over Christmas? That reflects an industry shift, as China outsources some of its traditional manufacturing to other parts of Asia and leverages what it has learnt from its global business customers (take Apple, for instance) to produce higher value-added goods and services. A survey of Chinese purchasing managers covering both manufacturing and services out on Wednesday showed an overall drop in business activity in December, but a widening gap between the two sectors. One important difference was that services companies continued to hire new staff last month while manufacturers shed jobs3. These trends are reflected in China’s retail sales, which continue to grow appreciably faster than the overall economy. Sales of consumer goods increased at an annual rate of 11% in November, with household appliances and AV equipment (+18%) furniture (+15%) and medicines (+16%) among the standout numbers4. It seems unlikely that China’s government will let overall growth slip too far. It has demonstrated already that it will not shy away from cutting interest rates and the amounts banks are required to hold in reserve in an effort to support growth. Further signs of economic weakness this year could bring more of the same5. It seems plausible too that the markets regulator will adapt the way in which circuit breakers work as, clearly, they are failing to operate as desired. Skilful, active fund managers pounce on market disconnects such as the one we have seen this week as opportunities and build their reputations on them. They are likely to be in a better position than most of us to identify the emergence of value in companies they know well and, depending on the availability of cash in their portfolios, they may act on that knowledge. Such flexibility during volatile periods presents opportunities that passive, indexed funds do not enjoy. That is as true in China as anywhere, as government initiatives to reshape the economy towards a more consumer-led entity, promises to widen the divide between winners and losers still further. China’s thriving information technology sector underlines this: Four Chinese firms – Alibaba, Baidu, Tencent and are among the world’s top-10 internet companies6. Unlike their western counterparts, such as Google and Amazon, they are ideally positioned and tailored culturally to capture growth in China’s burgeoning consumer market. At this point it seems worth mentioning that, following the stock market’s recent poor showing, Chinese equities look attractively valued overall, particularly when viewed against the higher valuations and lower prospective growth rates of western countries. Market moves in Shanghai and Shenzhen this week have bought domestic shares back close to their pre-bubble levels of just over a year ago7. Moreover, the MSCI China Index, which covers around 85% of China’s investable universe of shares, traded on less than 10 times the earnings of the companies it represents at the end of November8. While that belies substantially higher valuations among hot “new economy” stocks, it represents a sizable discount to world equities (trading on 19 times). Moreover, it suggests that, even before the market falls of this week, a good amount of pessimism about China’s future had been factored in. One can only conclude that the opening up of Chinese markets to private companies at a time when the demand for consumer goods, sustainable energy production, information technology, insurance services and better healthcare continues to expand, promises opportunities for investors prepared and able to take a longer term view.
30th November 2015 - Portfolio analysis by JP Morgan: The trust's net asset value outperformed the benchmark, while the share price underperformed. Stock selection added value in all three markets, with secular growth names in China the top contributors to returns. The overweight in Sino Biopharmaceutical continued to work well as the stock rallied on strong earnings. Our core internet position in Tencent also helped given strong mobile gaming and advertising revenue. Names geared towards positive consumption trends enjoyed share price gains, such as Zhejiang Huace Film & TV, IMax China, CAR Inc and Regina Miracle. China Petroleum & Chemical was the biggest detractor from returns given losses in its exploration & production business on the back of further oil price declines. Our position in Vipshop also hurt returns given the discount retailer's earnings miss. Uncertainty around potential tariff cuts for wind and solar power added pressure on renewable energy stocks, such as China Longyuan Power and China Everbright International, where we are overweight.
Why China's problems are worse than investors think China's problems are worse than many people think, argues Fidelity's Dominic Rossi. China's slowing economic growth has proved the catalyst for the bulk of the stock market upheavals throughout 2015. Whether it is the rout in mining stocks which has reignited over recent days, the heavy stock market falls over the summer or the jitters prompted by the failure of the US to raise interest rates in September, China has played a large role in the uncertainty facing investors as they look ahead to 2016. Pause for thought: Dominic Rossi, chief investment officer at fund group Fidelity, argued that China's economic problems were worse than many investors thought, and should prompt a shift in broader expectations around emerging markets. China's economic growth has been faltering since its double-digit expansion before the financial crisis, with the recent third quarter figures putting its annual growth rate at 6.9%. And last month, China's premier Xi Jinping said the country needed to grow by more than 6.5% over the next five years to meet its targets. Those still bullish on China have argued that despite the slowing growth, the country is still the world's faster growing major economy, with even a 6.5% growth rate far outstripping growth seen in the developed world. Deflation threat: That is too simplistic a view, argued Rossi in a conference call with investors today. China faces a deflationary threat, he said, pointing to the producer prices index – a measure of the price of factory goods – which had fallen for 32 consecutive months. Consumer prices are still rising modestly, but experts fear the slump in factory prices will ultimately hurt headline inflation. Any deflation will weigh on economic growth, as does the fall in the yuan, down 3.5% against the dollar over the year after China's shock series of devaluations over the summer. Contrast that with the US, where the economy is expected to grow by 2.5% over the year, against a backdrop of core inflation – excluding food and energy prices – of 1.9%, and nominal economic growth, accounting for inflation, is twice as fast in the US in dollar terms as in China. 'The key event in 2015 is the emerging markets crisis we are now in,' said Rossi. 'The importance of this is it basically means the emerging world has joined the developed world in a very low nominal growth framework. Up until now we have been quite happy to think of emerging markets as having a much higher nominal growth rate.' Rossi believes that markets in 2016 will continue to be led by the US. He argued markets were still in the middle of a post-financial crisis cycle contrasting markedly with the dynamics of the market that prevailed in the five years leading up to the 2008 crash. The expansion of shares valuations by an increase in the multiples – or premium – investors are prepared to pay for growth stocks, rather than a rise in profits, have driven the post-financial crisis rally. This has been lead by developed markets, particularly the US, with investors prioritising intangible assets like intellectual property over hard assets like commodities, with income investments also in the ascendancy. Strong US: Rossi sees no signs of that changing next year. 'Throughout 2016, we remain very, very confident about the health of the US consumer and we think the health of the US consumer will work its way through the developed world,' he said. But returns for much of the market will be subdued by the already-high premium placed on income-producing assets, he said. 'We are living in a world where we have too much capital chasing too little income. We are effectively bringing forward future returns to today. The gap between present value of securities today and their future value has been narrowed. 'We are in an era of defiantly high asset prices. The returns by definition must be lower by historical standards.' He argued that technology and innovation, especially in the US, was where growth opportunities remained, despite its already strong run. 'The only way within equities to escape this environment is to focus on the theme of innovation. The innovation we are seeing in information technology, social media, gaming, healthcare, medtech and biotech. It's this leadership in innovation whic is mainly captured by the Nasdaq. That leadership is here to stay.'
Like Soviet Russia in 1959, has China's economy already peaked? Structural over-capacity and falling productivity in many once-booming sectors means the Chinese economic model is now in crisis, Barry Norris, founder and CEO of Argonaut Capital When in 1959, Nikita Khrushchev visited the US; the spectacular economic growth recorded by the Soviet Union was commonly regarded as a challenge to the supremacy of the western model of democratic capitalism. Impressive statistics, such as its manufacturing output of tractors, mesmerised Western opinion formers. Newsweek warned that the Soviet Union might well be "on the highroad to economic domination of the world". American economist Paul Krugman's economic analysis suggested this "economic miracle" could be explained simply by the "rapid growth in inputs: expansion of employment, increases in education levels, and, above all, massive investment in physical capital", and that the subsequent collapse of the Soviet economic model stemmed from its failure to increase "units of output per units of input". With falling productivity, Soviet growth would inevitably slow as returns on investment diminished. According to Krugman in 1994: "Living in a world strewn with the wreckage of the Soviet empire it is hard for most people to realise that there was a time when the Soviet economy, far from being a byword for the failure of socialism, was one of the wonders of the world – that when Khrushchev pounded his shoe on the UN podium and declared 'We will bury you', it was an economic rather than a military boast". Perhaps there are parallels with perceptions of the Chinese economy today? Tipping point: The Chinese economic model has been to establish itself as the world's lowest cost manufacturer by utilising cheap (rural) migrant labour on an unprecedented scale, and then to recycle the current account surplus from these exports on an equally unprecedented capital spending boom. Accordingly, as the supply of cheap (rural) migrant labour slows and capital build in manufacturing, housing and infrastructure outstrips sustainable utilisation then – without commensurate gains in productivity – growth will slow-down. Given the economic model requires surplus savings to be ploughed back into new production, consumption remains relatively depressed. As with the post-1950s Soviet Union, there is a tipping point when the economic model stops working. China's response to the global financial crisis in 2009 – a stimulus programme, equivalent to 16% of GDP – is now widely regarded as a policy error. Local governments were provided with bank loans to finance capital spending on infrastructure, housing and manufacturing in order to achieve mandated GDP targets. Money supply doubled between 2007 and 2011, with over half of all bank lending directed toward infrastructure projects. Much of the capital formation was non-productive and wasteful. The stimulus also resulted in local party officials enriching themselves through appropriation of revenues from land sales, kick-backs and often ownership of the construction companies involved. This resulted in a conspicuous consumption boom amongst Chinese elites and more recently a subsequent backlash in the form of an 'anti-corruption' purge. The Chinese banking industry has also weakened. No major economy can sustain annualised loan growth of 30% without a subsequent rapid deterioration in asset quality. There is a general reluctance across the industry to recognise bad loans: liquidity to unprofitable or insolvent borrowers is simply rolled and, as such, the 'true' non-performing loan (NPL) ratio is likely double digit, compared to an incredulous official rate of just 2%. At best, the Chinese banking system will find itself short of equity and unable to allocate capital to profitable ventures that support sustainable economic growth. At worst, lack of confidence in a rotten and corrupt banking system will result in a wholesale loss of confidence in Chinese assets. Over-capacity: The trade-off between the short-term pain of reducing excess capacity in a wide-range of economic activities and the long-term gain of more efficient mobilisation of resources is now widely recognised. Nevertheless, it is difficult to see how capacity is shut down, as financing to 'zombie' corporates is often supplied by regional banks under the influence of local government, reluctant to create localised unemployment and unrest. A symptom of this structural over-capacity is that factory gate prices (PPI) are currently falling at an annualised double digit rate. Only by adjusting nominal output by this massive GDP deflator can it be argued that Chinese manufacturing is still contributing to overall economic growth. There is the potential for this excess manufacturing capacity to be at least partially absorbed by exports. But China is no longer the world's lowest cost manufacturer, not only because the supply of additional cheap labour has diminished, but because its currency (by virtue of being pegged to the US dollar) has risen significantly against its Asian peers (on a trade weighted basis 30% over five years). The Beijing government sees a strong and stable exchange rate as politically desirable: in part given their desire for its prestige as an international hard currency; but also because of a lack of confidence in its economic prospects that a devaluation would betray.
China could surprise: Another important factor is China. Andrew Cole, senior investment manager of the recently launched FP Pictet Multi-Asset fund, said he was becoming more optimistic about the world’s second largest economy. Although China’s devaluation of its currency in the summer revealed the economic concerns held by its leadership, Cole said Beijing had pulled all the levers at its disposal, with repeated cuts in interest rates and other stimulus measures to shore up the declining growth in gross domestic product (GDP). Cole told Citywire this convinced him that ‘whatever the number [GDP] is it doesn’t get much worse from here. We’re starting to see tentative signs that China produces a positive surprise in 2016'. His comments come amid mixed but positive data coming from China. According to today’s Financial Times, the outflow of capital from China reversed last month as the central bank and the country’s financial institutions bought a net $2 billion (12.9bn Rmb) in foreign exchange. Although figures last week showed China’s GDP fell to 6.9% in the third quarter, its lowest annual pace since 2009 with industrial production at a new low, retail sales had grown 11%, a sign that the transition from a state-led to a consumer led economy was intact. Car sales rose 13.3% to 1.9 million units in October, the fastest pace in 17 months, the FT reported.
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