China: Beyond the headlines. Bill Maldonado HSBC Global Asset Management

Transcription

1 China: Beyond the headlines Bill Maldonado HSBC Global Asset Management

2 Are you a China Bull or a Bear? Source: Various news publications 2

3 Bear myth #1: Hard landing?

4 GDP: Growth is slowing, but it s not sudden % y-o-y Real GDP Source: CEIC, HSBC Global Asset Management, data as at October

5 Divergence in growth among sectors Consumption-upgrade sectors maintain relatively solid growth, while mining/overcapacity sectors slow down % y-o-y Mining Pharmaceutical Ferrous Metals metal smelting & pressing PCs Electronics & other & electronic computers equipment Source: CEIC, HSBC Global Asset Management, data as at October

6 Bear myth #2: Running out of growth drivers?

7 Consumption s contribution to GDP growth continues to increase (H1) Consumption (percentage points; ppt) Investment (ppt) Net exports (ppt) GDP growth (%, yoy) Source: CEIC, HSBC Global Asset Management, data as at October

8 Services = New engine for growth % of GDP Agriculture Industry & construction Services Primary Secondary Teritary/services Source: CEIC, HSBC Global Asset Management, data as at October

9 Bear myth #3: Reforms have stalled

10 RMB: Move towards more market-driven regime 31/12/14 = Source: Bloomberg, HSBC Global Asset Management, data as at October 2016 CNY index vs. USD vs. EUR 10

11 RMB: Special Drawing Rights (SDR) inclusion RMB s SDR inclusion on 1 October 2016 marks a major step in RMB internationalisation 100% 90% 80% % 60% 50% 40% 30% % % 0% 1 January September 2016 From 1 October 2016 onward USD EUR RMB JPY GBP Source: IMF, HSBC Global Asset Management, data as at October

12 China bond market opens up to foreign investors With new regulations announced in 2016, most real money investors with a medium- or long-term investment horizon are eligible to invest in the China Interbank Bond Market China bond market is the third largest in the world 3. China: $6.5 trillion Foreign participation is growing, but remains low at 3% 2. Japan: $9.8 trillion 1. US: $40.5 trillion J.P. Morgan placed China under Index Watch. Weighting could go up to 10% in GBI-EM Global Diversified series US$155bn of potential capital inflows 1 Note: 1. According to J.P. Morgan estimates, if Chinese government bonds are included in the three leading global bond indices. Estimates as of May 2016 Any forecast, projection or target contained in this document is for illustrative purpose only and is not guaranteed in any way. HSBC accepts no liability for any failure to meet such forecasts, projections or targets Source: CEIC, HSBC, Sifma Statistics, Asian Development Bank, JP Morgan, as of March

13 Launch of Shenzhen-Hong Kong Stock Connect in 2016 The Shenzhen-Hong Kong (SZ-HK) Stock Connect programme will be effective by the end of 2016 Daily Quota (no aggregate quota) Northbound (HK SZ) RMB13bn Southbound (SZ HK) RMB10.5bn Eligible stock universe Constituents of index below with RMB6bn or above 1, 2 SZSE Component Index SZSE Small/Mid Innovation Index Dual listed names in SZSE (A-share) and HKEx (H-share) Hang Seng Composite Large Cap Index Hang Seng Composite Mid Cap Index Constituents with HKD5bn or more market cap 2 in Hang Seng Composite Small Cap A/H dual-listed H shares Notes: 1. ChiNext stocks are only available to institutional professional investors under HK related regulations in the beginning of the launch until further notice 2. Market cap calculation methodology will be provided by Shenzhen Stock Exchange & Hong Kong Exchange later Source: Goldman Sachs, data as of June

14 Bear myth #4: Monetary policy is no longer accommodative

15 Move towards interest rate-based monetary policy framework Benchmark interest rates on hold, but market-based rates have come down day repo Bechmark lending Benchmark deposit 10-yr GB 5-yr AAA corporate Source: CEIC, Bloomberg, HSBC Global Asset Management, data as at October

16 Bull myth #1: Government is committed to unleashing market forces

17 SOE reforms focused on relatively simple measures Number of SOE reforms undertaken/announced Source: CICC Research, as at August

18 Bull myth #2: China is finally deleveraging

19 Excessive corporate leverage Leverage continues to build up, particularly corporate debt Bank NPLs continue to rise % GDP CNYtrn % Q07 4Q08 4Q09 4Q10 4Q11 4Q12 4Q13 4Q14 4Q15 1Q16 0 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 0 General government Household Non-financial corp. Source: CEIC, BIS, HSBC Global Asset Management, data as at October 2016 Special-mention loans (SMLs) (LHS) NPLs (LHS) NPL ratio (RHS) NPL+SML ratio (RHS) 19

20 Bear myth #3: The government has a strong fiscal position

21 Fiscal deficit larger than official budget figures suggest % GDP F Government budget deficit IMF augmented net lending/borrowing Source: CEIC, IMF, HSBC Global Asset Management, data as at October

22 Bull myth #3: Property is back

23 The recovery is real, but the overhang is more real 60% GFA (sq m) 500,000 50% 450,000 40% 30% 20% 10% 0% -10% 400, , , , , , ,000-20% 50,000-30% Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Residential floor space sold (y-o-y %) Source: CEIC, National Bureau of Statistics, HSBC Global Asset Management August Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Floor Space Sold (residential) Floor Space Waiting for Sale (residential) 23

24 The reality is neither bull nor bear

25 Growth driven by public sector investment China: Fixed Asset Investment (FAI) growth %y-o-y; 3mma Source: CEIC, HSBC Global Asset Management, data as at October 2016 Total State owned & holding enterprises Private enterprises 25

26 The impossible trinity or trilemma which one to give up? Fixed/stable foreign exchange rate China is trying to maintain a relatively stable foreign exchange rate Opening the capital account while maintaining a fixed exchange rate regime, especially when domestic macroeconomic policies are not consistent with the requirements of the regime, has been followed by crisis in many countries Impossible Trinity: at a certain time, a country can only have a combination of any two of the three conditions not all of the three Independent monetary policy China wants an independent monetary policy Free capital flows China is accelerating capital account liberalisation Source: HSBC Global Asset Management as of October

27 Government debt in China remains manageable % GDP Russia Chile Peru Indonesia New Zealand Turkey Philippines Taiwan Australia Korea Venezuela China Thailand South Africa Colombia Argentina Mexico China (augmented) Malaysia Vietnam Pakistan India Germany Brazil Hungary Sri Lanka United Kingdom Canada France Spain Singapore United States Portugal Italy Japan Source: IMF, HSBC Global Asset Management, data as at October

28 Rapid property price gains restricted to select cities Price change % MoM Source: WIND, HSBC Global Asset Management, data as at September 2016 Tier-1 Tier-2 Tier-3 Overall 28

29 Private sector industries have been addressing overcapacity issues Certain private sector industries now enjoy stronger pricing power on the back of more balanced industry demand-supply dynamics China containerboard capacity Thousand tonnes 60,000 50,000 40,000 30,000 20,000 10,000 Capacity growth 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% F Containerboard Capacity Containerboard Production Capacity growth (RHS) -4.0% Any forecast, projection or target contained in this presentation is for information purposes only and is not guaranteed in any way. HSBC accepts no liability for any failure to meet such forecasts, projections or targets Source: RISI, UMPaper, data as of July

30 Don t be a bull or a bear! 30

31 Be a chicken.be selective! 31

32 Key risks and disclosures

33 Key risks Investor should be reminded that investment in some of the developing Asian countries may involve special considerations and risks. Political changes, government regulation, social instability or diplomatic development, etc. could affect adversely the economies of such countries or the value of the investment Change of interest rate may affect the value of the investments. Bonds and other fixed income securities are more susceptible to fluctuation in interest rate and may fall in value if interest rates change The assets and liabilities of the investments may be denominated in Asian currencies which is different from the base currency of the investments. Therefore, the investments maybe affected favorably or unfavorably by exchange control regulation or changes in the exchange rates between the base currency and other currencies The investments may have exposure in credit risk whereby investments in non-investment grade debt obligations involves a high amount of risk. An issuer suffering an adverse change in its financial condition could lower the credit quality of a security, leading to greater price volatility of the security Investments made may have exposure in financial derivative instruments, such as futures, forwards and swaps, etc. Investments in financial derivative instruments may involve a greater degree of risk than in case with conventional securities and may subject to liquidity and counterparty risks Currency movement and market condition may affect the value of investments 33

34 Explanatory notes and disclaimers This document is supplied to you solely for your information. This document should not be reproduced or further distributed to any person or entities, whether in whole or in part, for any purpose. Investment involves risk and past performance is not indicative of future performance. The material contained herein is not intended to provide professional advice and should not be relied upon in that regard. Readers should seek appropriate professional advice where necessary. The opinions expressed herein should not be considered to be a recommendation by HSBC Global Asset Management (Hong Kong) Limited to any reader of this material to buy or sell securities, commodities, currencies or other investments referred to herein. HSBC Global Asset Management (Hong Kong) Limited, its ultimate and intermediate holding companies, subsidiaries, affiliates, clients, directors and/or staff may, at any time, have a position in the markets referred to herein, and may buy or sell securities, currencies, or any other financial instruments in such markets. HSBC Global Asset Management (Hong Kong) Limited has based this document on information obtained from sources it believes to be reliable but which it has not independently verified. HSBC Global Asset Management (Hong Kong) Limited and the HSBC Group make no guarantees, representations or warranties and accept no responsibility or liability as to its accuracy or completeness. Information in this report is subject to change without notice. 34