Deleveraging delusions
Will it or won't it? That seems to be the question of the day as regards China. The topic? Deleveraging. Xi Jinping and the Chinese leadership have committed themselves to a deleveraging programme but in this month's Asianomics Group Strategy Report, Deleveraging Delusions, we argue that a wholesale paying down of debt in China is far from a likely outcome (if it were to happen accidentally, we would all suffer). Countries do not pay down debt voluntarily. Since the global financial crisis debt has risen in the OECD countries and China will be no different (although the debt will shift from local governments and SOEs to the government and other industries). The reason for this is simple: debt is true inflation and worse an inflation has been started it has to be fed or recession will ensue. China flirted with just such an outcome in 2014 and 2015 and will not be in a hurry to do so again.We also look at the false alarms that have been rung for the last few years by the BIS in respect of Chinese debt. So far, the BIS' preferred early warning measure has produced 12 false positives in a row. Isn't it about time that analysts started looking for a different indicator?
Best for now
Jim
Asianomics, founded by Dr Jim Walker in 2007 and based in Hong Kong, specialises in economic analysis research, cross-referencing their work with credit cycles, profit cycles and cash flows. Asianomics focus is on developments in the Asia-Pacific region, and they also cover developed markets like the US and Europe.
The Austrian Economics model provides a framework for the economic research. The basis of the School of Austrian Economics is that economies work more efficiently and effectively when companies and individuals are free from excessive interference by government and special interest groups. The Asianomics economic research team includes Deputy Chief Economist Sharmila Whelan who is recognised for non-consensus thinking and her depth and quality of primary research, and Chief Economist Dr. Jim Walker.
Asianomics’ subscribers have access to regular economic commentary, stand-alone Country Reports, Special Reports and Investment Strategy Reports. Dr. Jim Walker also provides weekly webcasts.
Dr. Jim Walker is regarded as one of Asia’s leading economists. Prior to setting up Asianomics, he was the Chief Economist at CLSA Asia-Pacific Markets, where he worked for more than 16 years. He has achieved numerous ‘Best Economist’ rankings in the Asiamoney, Institutional Investor and Greenwich surveys of fund managers.
Previous successful calls include:
- In 1995 Dr. Jim Walker wrote about the prospect of Asia being forced off its de facto dollar peg “within the next two-three years”. The Asian Crisis, precipitated by the Thai baht devaluation, began in July 1997.
- Forecasted the US 2007 downturn and financial sector meltdown in series of ‘Apocalypse’ reports.
- Called early the upswing in the Indian stock market in the final quarter of 2013.
Recent Recommendations:
- Overweight China - We are overweight Chinese equities with momentum improvement in the economy.
- Short Sterling, Long Renminbi - China’s currency offers good upside with a positive carry.
- Short European Financials, Long Indian Financials - This is the simplest pair trade to play superior demographics and growth in Asia relative to the region with the biggest problems.
- Long EM Asia, Short Developed countries - South and SE Asia, and direct investors from North Asia, are ‘buy and hold’ investment bets.
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