De nuevo muy positivos…
Pimco, BlackRock and Mobius's Predictions for China in 2017
Global investors may have to start paying attention to Chinese politics again.
While the country was a bastion of stability in the year of Brexit and Donald Trump, Beijing’s potential to surprise markets is rising in 2017. Not only does President Xi Jinping face external challenges from a combative American president and a belligerent regime in North Korea, his ruling Communist Party plans a twice-a-decade leadership reshuffle toward year-end. The run-ups to such transitions are often tense, and this one will be crucial to cementing Xi’s grip on power.
The stakes are high for investors. Gene Frieda, a strategist at Pacific Investment Management Co., says this year’s leadership shake-up could determine whether China becomes a market-friendly nation dedicated to reform, or one where government meddling stifles economic growth. He’ll be looking for early clues on Sunday when the National People’s Congress convenes its annual session in Beijing, a warm-up for the pivotal party conclave. The Shanghai Composite Index slipped 0.2 percent on Thursday, paring this year’s gain to 4.4 percent.
For tips on how to navigate China’s big political year, we spoke to Frieda and counterparts at BlackRock Inc., Templeton Emerging Markets Group and Weiss Multi-Strategy Advisers -- firms that oversee a combined $6.6 trillion. Here’s what they said:
Pimco
Economic growth target announced at NPC may be key signal of the government’s commitment to painful reform; 15-20% chance it’s cut below 6%; abandoning target would be better
China will be reactive to U.S. moves and try to be conciliatory, except regarding Taiwan’s sovereignty; risk of a trade war favors bigger weighting in the dollar, defensive investments and securities with good liquidity
Base-case forecast of 5% to 7% yuan depreciation versus the dollar this year
Still unclear whether Xi will use his power to enact tough reforms
“There are two camps on what the current status of leadership means, but we can’t judge which camp is right until after the 19th Party Congress,” said Frieda, the firm’s London-based global strategist. “One can believe this consolidation of power is the only way that China could go through all the reforms that they need to do, because you need absolute centralized control.
“The other camp believes that we are near the era when the party’s role in the economy will increase again due to more centralized power, which we do not think is conducive to strong economic growth.”
BlackRock
China will keep focus on political stability and try to create an environment “where a lot of hard work can be done”
Favor domestic-focused companies over those dependent on international trade; higher-quality businesses can endure a pickup in volatility around U.S.-China relations
Seek long-term opportunities tied to supply-side reform in commodities sector
One NPC focus will be encouraging China’s transformation to a consumption- and services-oriented economy
“Some consolidation of power is useful because it can get things moving,” said Jeff Shen, the firm’s head of emerging markets and co-head of scientific active equity. “It is very difficult to enforce change and transformation without centrally consolidated power. Reform could go faster.”
Templeton
Xi’s authority may not reach that of former leaders like Mao Zedong or Deng Xiaoping because power has become more dispersed, with competing interests at the local and provincial levels
China will project strength on Taiwan and the South China Sea, but may seek to appease the U.S. in the short term
NPC will highlight China’s efforts to boost the technology and environmental industries
Wouldn’t be surprised to see growth target of 6%, but not much lower because there’s still need for infrastructure and anti-pollution investments
“The biggest challenge facing the Chinese leadership now is the dramatic change in the stands taken by the American leadership,” said Mark Mobius, executive chairman of Templeton Emerging Markets Group. “On one side, China must show strength when it comes to relationships with the U.S. However, this strength must be tempered by the realization that poor relations with the U.S. will probably hinder continued growth in China.
“The best dance would be to mollify the U.S. so that China can gain time to eventually equal or even surpass the U.S. in terms of economic strength and technology. Our stance therefore is to continue seeking good domestically-oriented companies in China, particularly those that have a technological edge or are moving toward high-level technology.”
Weiss
Xi appears to be taking bigger leadership role in global trade; unlikely to back down from the U.S. on the next military issue in Asia
China-U.S. trade tension will boost volatility in global markets
Fears over China from debt and reserve perspectives are overblown; Chinese equities will outperform U.S. stocks
Reduced access to U.S. consumer because of trade barriers could spur China and other nations to boost corporate productivity
“This change in the China-U.S. relationship to me will likely be the event that makes the world realize that China’s GDP increased from $4.5 trillion to approximately $12 trillion during the last administration,” said Jordi Visser, the hedge fund’s head of investments in New York. Weiss’s main multi-strategy fund returned 9.6 percent last year and 1.5 percent in January.
“Their importance on global trade and the global economy makes this relationship far more important than before. This recognition will likely lead to an increase in volatility within asset markets, which will be impacted by events on both trade and geopolitics.”
Abrazos,
PD1: China manufacturing PMI strengthens more than expected. JP Morgan upgrades China 1Q GDP to 6.6% q/q from 6.1% previously.
China's Factory Gauge Strengthens as Producer Prices Rebound
China’s official factory gauge firmed in February as producer prices rebounded, giving top officials gathering in Beijing a solid economic backdrop as they seek to rein in financial risk.
Key Points
Manufacturing purchasing managers index climbed to 51.6 in February, compared with a median estimate of 51.2 in a Bloomberg survey of economists and 51.3 in January
Non-manufacturing PMI stood at 54.2 versus 54.6 in January
Private manufacturing PMI from Caixin Media and Markit Economics climbed to 51.7
Numbers higher than 50 indicate improving conditions
Big Picture
The National People’s Congress starts this weekend and will likely signal increasing tolerance for slower yet sturdier economic expansion as leaders unveil their growth target for this year. Policy makers have pledged prudent monetary policy as they seek to manage the risk from swelling debt that followed earlier rounds of stimulus. They’re also seeking to cut jobs in overcapacity industries to insure against a renewal of deflationary pressures.
Economist Takeaways
"Given the stability of economic activities, we believe that monetary policy will gradually tighten," Zhou Hao, an economist at Commerzbank AG in Singapore, wrote in a report. "Bubble deflating will remain the key theme in the upcoming National People’s Congress."
"The recovery in global manufacturing activities and solid domestic demand has provided support," said Cui Li, head of macro research at CCB International Holdings Ltd. in Hong Kong. "The positive surprise of PMI bodes well for a continued pick up in manufacturing and improvement in earnings outlook."
"Early signs on China’s economy in February point to an acceleration in growth," Tom Orlik, chief Asia economist at Bloomberg Intelligence in Beijing, wrote in a report. "Gauges of expectations show optimism at elevated levels. For now at least, managers are shrugging off the risk of trade tariffs by the U.S. or a slowdown in the domestic property sector. Factory reflation is continuing at a rapid pace."
"In the short term, growth is the key thing here," Helen Qiao, chief Greater China economist at Bank of America Corp. in Hong Kong, said in a Bloomberg Television interview. "We need to be aware of the fact that we’re at the end of a policy cycle where policy makers are now seeing all of these numbers becoming more and more complacent."
"Economic activity will likely peak in the first quarter," said Larry Hu, head of China economics at Macquarie Securities Ltd. in Hong Kong, who added that corporate profits will weaken as the producer price surge wanes this year. "The NPC will lower the growth target slightly this year, as policy makers acknowledge the nation’s weaker growth potential."
The Details
Large enterprises are benefiting more from higher material prices: The PMI for large firms stood at 53.3, versus 50.5 for mid-size companies and 46.4 for small businesses
The number of companies reporting higher labor costs rose to the highest level in about a year, according to an NBS statement released with the data
PD2: La ternura es la base del amor de los padres a los hijos. Lo sabemos bien. Pero qué desastre es cuando no se ve ternura en los padres con los hijos. Es premonitorio de males mayores. El cariño, la ternura es lo que recibimos de Dios, que tiene toda la paciencia con nosotros y nos espera. Así es como debemos tratar a nuestros hijos, con mucho cariño, sin reproches, con toda la ternura del mundo. Si un padre grita a un hijo en vez de darle toda su ternura, se está equivocando…, si hay reproches continuos en vez de apoyo y confianza, eso no es amor, sino todo lo contrario…
