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CHINA- 2017 OUTLOOK

​The Chinese economy is expected to continue its gradual slowdown in 2017. The economy is slowly rebalancing and becoming less trade dependent as it continues its progress towards more sustainable consumption driven growth model.

The Government’s balancing act of engineering a structural shift in the country’s economy, while avoiding the pitfalls of a hard landing continues. The government’s fiscal stimulus has stabilised the economy to a large extent whilst keeping inflation within manageable limit.

Accommodative monetary policy enabled by low inflation and rebound in earnings growth is expected to provide much needed boost to the capital market.

We have provided the outlook for four sectors which in view would be crucial to market recovery and likely to witness the greatest action. The sectors are:

• ​Banking: Saddled with high debts and rising NPLs, the sector, buttressed by government support, is likely to see systematic clean-up, thereby strengthening the sectors’ fundamentals and setting the stage for a strong spring-back in 2018.
•  Insurance: The shift towards non-life products is expected to continue in the coming year, with health insurance market continuing its stellar growth. At current valuations, the sector, in our view is undervalued and should be in the to-buy list of most fundamental investors.
• Real Estate: Chinese policymakers have taken measures to cool the runaway housing prices by imposing purchase restrictions, raising mortgage down payment ratios and tightening developers’ financing. These measures have cooled the property markets and have stabilised prices. The policy measures have led to curtailment of speculative investment and led to slowdown in new launches. This has reduced the supply demand gap and led to inventory declining to more manageable levels. In 2017, the market is expected to remain subdued.
• Oil, Gas & Consumable Fuels: Oil and gas prices are expected to continue their rebound in 2017. This will provide some breathing space to China’s oil industry which is plagued by various issues. However independent refiners face uncertain future as could be the subject of government clampdown.

However, concerns do remain about currency volatility and intensification of capital outflows. High corporate debt is another factor which has the potential to derail the economy in 2017. External risks too have risen by the election of protectionist Trump administration which could trigger global turmoil.

The current year will witness structural readjustments to bolster the underlying fundamentals. It will be the year of consolidation providing a more stable foundation for future growth. We think the market provides an attractive investment opportunity for the long term investors looking to invest in high quality stocks at attractive valuations.