China Fears Overblown

China’s economy is critically important – both on a global scale as the second-largest economy in the world, and at a local level as Australia’s largest trading partner. It’s not surprising then, that developments in China are intensely monitored and analysed.

Recently, there have been mounting concerns that a slew of negative developments (tightening monetary conditions, stricter lending standards, slowing property purchases, slower fiscal spending and growing debt levels) could derail China’s economy and that of its trading partners. After all, there is precedent. In 2015, a similar combination of factors sent a shudder through global markets.

Morgan Stanley’s analysts believe these fears are overblown. They point to five factors that suggest 2017 is different to 2015 and the medium term outlook for China is positive.

  • Strong External Demand

    We are in the middle of a global synchronised expansion which is creating solid markets for China’s exporters.

  • Investments Led by Private Sector

    Investment into new capacity has been switching from the public sector to the private sector, which is typically more efficient at allocating capital.

  • Property Market is Healing

    Housing inventory has declined from 33 months in 2015 to 24 months today which indicates unsustainable building is being curtailed.

  • Countercyclical Policy

    Some policy measures which are feared – tightening monetary conditions, stricter lending standards and slower fiscal spending – should be seen as encouraging. Given the strength of the economy, this tightening is appropriate.

  • Debts are Manageable

    Nearly all China’s debt is held internally, which makes it easier to manage. And China’s government has healthy foreign reserves which further strengthens its ability to manage its affairs.

What does this mean for investors?

Morgan Stanley believes China is on a solid footing given the context of synchronised global growth and manageable internal challenges. As a result, our analysts continue to recommend clients revisit their asset allocation and focus their attention on international equity markets. We believe better opportunities can be found outside of the ASX and continue to prefer equity markets in the US, Japan, Europe and Emerging Markets.

Speak to your Morgan Stanley financial adviser for more information on how to position your portfolio to benefit from the insight of our award-winning global and local research teams.

  • Important Information

    All material on this website has been prepared by one or all of Morgan Stanley Australia Limited (ABN 67 003 734 576, AFSL 233742), Morgan Stanley Australia Securities Limited (ABN 55 078 652 276, AFSL 233741), a participant of the ASX Group and Chi-X Australia, Morgan Stanley Investment Management (Australia) Pty Limited (ABN 22 122 040 037, AFSL 314182) and/or Morgan Stanley Wealth Management Australia Pty Ltd. (ABN 19 009 145 555, AFSL 240813), a participant of the ASX Group (collectively “Morgan Stanley”), for informational purposes only and is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. Unless otherwise stated, the material was not prepared by the Morgan Stanley Research Department and is not a research report as defined under ASIC guidance.

    This communication provides market commentary and strategy ideas to clients of Morgan Stanley and its affiliates. Such commentary and ideas are based upon generally available information. Although the information has been obtained from sources believed to be reliable, we do not guarantee its accuracy, and such information may be incomplete or condensed. All opinions and estimates included in this document constitute our judgment as of this date and are subject to change without notice.

    The material on this website contains factual information only and is not intended to reflect any recommendations or financial advice, nor is it an offer or solicitation in relation to any particular financial product. To the extent this document does contain any general advice, it has been prepared without taking into account your objectives, financial situation or needs, and because of this, you should, before acting on it, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs, and if the advice relates to the acquisition of a particular financial product for which an offer document (such as a prospectus or product disclosure document) is available, you should obtain the offer document relating to the particular product and consider it before making any decision whether to acquire the product.