HSBC says fear of Chinese ‘hard landing’ overdone

The stability of China remains HSBC’s key call, said Frederic Neumann, HSBC’s co-head of Asian economic research, who is also optimistic on the ASEAN markets.

HSBC has cut growth forecasts for trade-dependent economies across the region, notably Hong Kong, Korea, Singapore and Malaysia. HSBC’s newest GDP growth forecasts for Hong Kong in 2011 and 2012 are 5% and 4.5% respectively, down from 6.5% and 5.4%.

On the contrary, as exports contribute less to China’s overall economic growth, the bank remains positive that China is a stepping into a ‘soft landing’, which GDP for 2011 and 2012 will reach 8.9% and 8.6% respectively.

“The fear of ‘hard landing’ has been overdone. According to HSBC’s China PMI, the October figure has picked up significantly, the New Export Order Index also rises, showing China’s economy is stabilising,” said Neumann.

However, Neumann pointed out massive loosening is not likely. “The expectation of global investors is perhaps China has a big announcement and everybody rejoices that China saves the world, but I think the response will be a little bit subtle this time, targeting specific areas because the Chinese government will try to avoid rising inflation by over loosening.”

In addition, the HSBC also favours ASEAN, which is finding its niche especially in export markets with lower production costs than China. Concerning Thailand’s recent flood, Neumann said although the flood has been tragic and it is hard to put an accurate number on the economic damage, he believes it will only have a short-term impact on the country’s growth.

“What history has told us is that these events usually have a short-term severe impact on growth, but then we can see very strong recovery. Similarly Thailand in the next several weeks would expect flood water to recede, and the economy will be aided by the government stimulus package,” said Neumann, who expects Thailand’s economy to contract this quarter, but may experience a V-shape recovery next year.

“In fact, we think next year we can see stronger growth in Thailand than its competitors because there are more rebuilding to be done. That’s why despite the current tragedy, the country remains an attractive market for investors,” added Neumann.

However, international markets have become fragile as a result of sluggish economies and debt problems at both sides of the Atlantics. Neumann believes Asian markets will remain volatile regardless of an impressive recovery last month as the European debt deal will not provide a quick fix to the existing problem.


This article was first published on Professional Adviser Hong Kong

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