GCC 2020 – in 60 seconds
- Expect modest growth for global economy, but low risk of recession;
- China and the US are working together, but trade tensions will remain;
- Trade tensions aren't causing a rapid shift of manufacturers out of China;
- China is becoming more Chinese and merits a strong place in portfolio allocations;
- China continues to offer huge opportunities for active investors
Expect modest growth for global economy, but low risk of recession
Key sources of uncertainty are trade issues (mainly US & China) and Middle East geopolitics, according to Dr Raghuram Rajan, Ex-Governor of Indian Central Bank, Director of IMF Research, who also said that while there are some signs of a build-up in risks, e.g. government and corporate debt, but if interest rates stay low, the risk of a calamity/recession are very low indeed. Asia and China will continue to be a bright spot in terms of global growth.
Asia and China will continue to be a bright spot in terms of global growth
China and the US are working together, but trade tensions will remain
The phase one trade deal is good for markets, but there are significant issues still to resolve, and tensions within the US and China relationship will remain for some time, according to Madam Fu Ying, China's former Vice Minister of Foreign Affairs.
Bin Shi, UBS AM Head of China Equities, has echoed this view, but sees opportunities in China from domestic drivers (consumer demand, ageing population etc) as China moves away from a trade-driven economic model to one driven by domestic demand.
Trade tensions aren't causing a rapid shift of manufacturers out of China
This was happening anyway and while some manufacturers have announced plans to move, the costs associated with moving and the difficulty of recreating supply networks in alternative locations mean the shift out of China will be limited, according to Dr Bert Hoffman, National University of Singapore.
Trade issue impacts on China's economy are minimal, especially as domestic demand is now the key demand driver, and trends associated with that are what investors should focus on.
China is becoming more Chinese and merits a strong place in portfolio allocations
China's own growth is increasingly driven by domestic sources, like consumer demand, according to Jeongmin Seong, Partner, McKinsey Global Institute.
The driving forces behind China's domestic demand story still have much more room to grow and Geoffrey Rubin of Canada Public Pension Investment Board (CPPIB) believes that's why China deserves and merits a strong place in portfolio allocations. Additionally, China exposure offers diversification benefits, and may justify investors allocating to China on a standalone basis rather than as part of a generic emerging markets strategy.
China continues to offer huge opportunities for active investors
China's onshore equity markets are inefficient, mainly because 80% of investors are retail who have an estimated average holding period of two days, according to Geoffrey Wong, UBS AM Head of Emerging Markets and APAC Equities.
That means retail investors set stock prices, creating inefficiencies that active, fundamentally-driven investors can exploit. That means active China strategies, driven by on-the-ground insights, have a strong track record of capturing China's alpha opportunities.
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