Raiffeisen sees surprising strength in China

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Raiffeisen Capital Management’s latest emerging markets monthly report highlights surprising strength seen in the Chinese economy, which otherwise faces the headwing of most of its key trading partners battling poor growth rates of their own.

“It appears that growth in China is continuing to pick up speed, and the export figures recently surprised on the upside, with China generating a new record monthly surplus in its trade balance,” the Vienna based manager said in its latest report.

“The question is where these exports are going, if – with the exception of the USA – almost every trade partner of China is battling against declining growth rates. Regardless, the real estate sector and lending are still the two main problem areas. Right after a relatively modest contraction in lending growth (from around 20 % p.a. to roughly 16 % p.a.), Beijing clearly felt the need to loosen the strings and provide additional liquidity. This underlines just how dependent the economy is on continued lending growth – which obviously cannot continue unrestricted. The markets are still concerned about insolvencies and payment defaults, but have recently concentrated more on the new stimulus measures and liquidity injections from the government. Although some of the measures taken so far have been known since April and were not particularly extensive, the equity markets in Shanghai and Hong Kong managed to turn up sharply (roughly +7.5 % in July). It remains to be seen whether this will evolve into a new and sustained upwards trend.”

Looking to other members of the ‘BRIC’ club, Raiffeisen said that figures from India were positive, despite the somewhat broken expectations that the new government’s first Budget would contain stronger reform commitments. The manger pointed out that industrial production was up more than expected.

The outlook on Russia is obviously tied to the geopolitical challenges linked to the country’s involvement in Ukraine, which the Austrian manager describes as “extremely tense”.

“The fighting in the eastern part of the country is intensifying, the number of fatal victims on all sides is rising sharply and almost a million people have already fled the conflict – roughly 700,000 of which into Russia. In light of the very harsh rhetoric from Washington and Brussels and the very volatile atmosphere, thanks partly to the media, any swift resolution to the confrontation that now evokes the Cold War era appears unlikely. The sanctions will no doubt represent yet another drag on the already weak economic growth in Russia.”

Click here to view the full report: EM Report – August 2014

 

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