Making Sense of Nonsense
If you try hard enough, dig deep enough and double-count as much as you can you will be able to reach any extreme you want if you are a China debt bear. In the last week we came across one analyst who is now estimating that China's debt to GDP is 833%, more than 150 percentage points higher than Japan's bloated debt mountain. Of course, you have to assume that all the reported debt numbers are wrong and that there is just loads of unrecorded items out there.That might well be true. We are under no illusions about the extents some businesses will go to to hide true borrowing levels and just how difficult it has been for the authorities to monitor the shadow banking system. Debt is likely understated. But so is GDP. What is not understated in China is money supply - essentially the accumulated savings of Chinese households and corporates. Instead of looking at debt to GDP mightn't it be more realistic to look at debt to M2 (savings)? Because then China doesn't look that scary at all as we show in our latest Asianomics Group Strategy Report, Making Sense of Nonsense.
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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