Stash away Therefore, I would like to delve into the obstacles China faces, whether or not they will escalate into a major crisis, as well as the long-term “opportunities” hidden in the world’s second-largest economy.
Yotsakon Niranwishaya, General Manager Stachaway Asset Management (Thailand) Limited The company indicated that the data shows that the Chinese economy is not entering into a major crisis. Many parties are concerned that the debt problem will escalate into an economic crisis.
Because of the groupReal estate businessAnd the business involved is very large. Or represents approximately 25-30% of the Chinese economy. This is despite significant data showing that China is facing a down cycle. But there is also other information. This indicates that the problem this time is not a major crisis.
● Commodity prices: Because China is a major importer of products. Any disruption in the Chinese economy will have a significant impact on the prices of a variety of commodities. From copper and metals to oil. But so far, events have not happened yet, and although copper and iron prices have declined over the past two years, they have recovered and are currently stable.
● Economic data: When looking at the overall economy, purchasing managers’ indices (PMIs) are often a good indicator of the situation in various industries. The PMIs in the manufacturing sector are hovering around the 50-point mark (the dividing line between an economy expanding or contracting), while those in services and outside the production sector, although declining, are still above the 50-point level, meaning that it is still… In expansion.
● Business groupChinese bank: The important thing is that if the problems in the real estate business group become more serious. The stability of Chinese banks will be an important factor in preventing this problem from escalating into a major economic crisis. The bad debt ratio of Chinese banks in June remained at 1.6%, which is very low, especially when compared to emerging market groups. This can be seen from the non-performing loans in India which is around 1.6%. %
At worst, if the Chinese developers are currently experiencing problems. (about half of the total) were unable to pay their debts.
Yotsakorn expects the impact on banks’ assets to be less than 2% because Chinese banks have a limited amount of lending to developers. Because the ratio of total capital to risk-weighted assets in Chinese banks remains at 14.7%, if this happens, the ratio of capital adequacy to risk-weighted assets will not fall below the minimum set by the Chinese authorities at 10.5% to 11.5%.
In the short term, China still faces obstacles at home and abroad.
The problems in China’s real estate sector have put great pressure on the Chinese economy as a whole. Given its relatively high share of GDP, the decline in investment in real estate (-10% last year and -8.5% this year, as of the end of July) will have a direct impact on the growth of the Chinese economy.
China is also facing pressure on exports. This is another important driving force for economic growth and represents 20% of GDP. Slowing demand from the United States also reduces the momentum of the Chinese economy. This is because the United States is China’s first major trading partner. In August, China’s total exports fell 8.8% year-on-year after falling by double digits in June and July.
The risk is managed by the Chinese government. But widespread stimulus is unlikely.
“In the past, the Chinese authorities have issued many measures to help real estate companies. To prevent problems from spreading to the overall economy, such as reducing down payment amounts and easing restrictions on home purchases. And supporting the reduction of mortgage interest rates. This is a good trend for investors.”
In the past few months the People’s Bank of China (PBOC) has also stepped in to help. By injecting liquidity into the financial system, the People’s Bank of China in August injected as much as 3.3 trillion yuan into the system.
but Yotsakorn expects that the Chinese government is unlikely to issue large-scale economic stimulus measures as happened during the 2008 global financial crisis. Because since then, the Chinese authorities have set a goal of reducing private sector debt and preventing a bubble. This makes the chance of reverting to high-stimulation very low.
In the long term, China is building a new engine to power its economy.
Currently, China is committed to developing new business sectors that will be a long-term economic driver, such as the electric vehicle business sector, and the government has been laying the foundations for the electric vehicle business sector since the late 2000s. Manufacturers are now able to produce high quality cars and parts at affordable prices. This makes it possible to compete in the global market. UBS estimates that Chinese electric vehicle manufacturers will account for 33% of the global auto market, or nearly double, by 2030.
Domestic EV adoption is also growing significantly, with BloombergNEF reporting that 33% of China’s car sales are EVs, and estimating that the share could rise to 67% by 2030. At present, domestic EV sales still account for more than 80% of Chinese brands.
However, the electric vehicle business sector is growing rapidly. It is still unable to compensate for the economic problems facing China in the short term. Global electric vehicle sales by Chinese manufacturers still represent just 0.6% of GDP, and despite estimates that the sector will triple by 2028, its contribution to GDP is still less than 2%. , which is not enough. Especially when compared to other major driving forces such as the real estate sector, which represents 25-30% of GDP, or the digital economy, which represents about 40%.
an opportunityLong term investor
Yotsakorn sees this in terms of investment and Chinese stock prices remain reasonable, with the forward P/E for the MSCI China Index in September at about 11 times, below the 10-year average of 12.5 times and below the MSCI Emerging Markets Index of 13.6 times.
In the long term, we believe that diversifying investment in China still makes sense. By investing at a ratio equivalent to the ratio between the value of the Chinese stock market and the global stock market.
StashAway’s overall investment portfolio, managed by ERAA™ investment technology, has a balanced mix of Chinese and global stocks. It invests in China through ETFs, emerging market indices and global macro market indices.
Yotsakorn pointed out that through all the information, although China is facing a slowing economic cycle, this is putting pressure on the profits of Chinese companies in the short term. But when you get into the details Fears of the collapse of the Chinese economy appear to be greatly exaggerated.
Or we may conclude that sticking to economic data rather than general headlines will allow investors to see a clearer picture and make more accurate decisions. To be able to invest for the long term with peace of mind
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