THINK back to when you were a child. You blew a bubble, it grew and eventually it burst.
That’s how some of my former colleagues in Hong Kong are feeling about China’s prospects at the moment – something I experienced first hand last week.
During a visit to some of my old haunts from the 1990s, I was astonished to find that the shop where I used to buy newspapers (and the occasional cigar) now sold Dior and Fendi. “China’s going to hell in a handbag shop,” quipped one bearish friend. Things had certainly changed since I lived out there.
There has been very little economic news to get excited about over the past two weeks. Britain is officially back in recession, Spain is on the brink of disaster, and a shrinking manufacturing sector and slowing growth in China are making economists I know ever so twitchy.
It’s been a difficult week for George Osborne, forced to defend his programme of austerity, which is clearly taking the country down the road of no growth. But with the national debt now exceeding £1 trillion there is no prospect of a let-up in the Government’s deficit-cutting drive.
Economists tell me fiscal policy is likely to continue to weigh on growth in the coming months. Figures to be published next month are expected to show the eurozone also went back into recession in the first three months of the year, although France and Germany – with lower deficits and a lesser need for austerity than Britain – may escape. Pretty gloomy stuff nonetheless.
China, which is supposed to be the global economy’s saviour, is also in bearish mood. The country’s manufacturing sector shrank for a sixth month this month and the government has cut its growth target to 7.5pc – the lowest since 2004. Still, that would be an incredible rate of growth by any major economy’s standards, and chums tell me it’s not time to retreat in despair just yet.
In terms of commodities, resurgent economic problems should be positive for the gold price yet the precious metal has remained subdued. Indeed, there appears to be a debate going on about whether now is the time to turn negative on gold.
According to IMF data, central banks from emerging economies bought large quantities of gold in March.
However, this is unlikely going to propel the price higher – the issue is prospects for the dollar, which has an inverse relationship with the price of gold.
The UK’s double-dip is negative for sterling, mounting opposition to austerity in Europe could hit the euro, but it’s the likelihood of QE3 in the US that is more important. More easing should boost gold, but if the Fed remains cagey about its operations the price could fall further. The most recent Fed meeting left the door open for more easing.
Oil inventories are also almost at the highest level in a year, so the price of black gold could be set for a tumble too.
Over in China, the scandal surrounding disgraced politician Bo Xilai continues to hog the headlines. With Xi Jinping expected to succceed Hu Jintao as president next year, there’s also feeling of refom in the air, which could eventually help settle currency market volatility.
One thing’s for certain, the quality of the air in mainland China remains awful. I’m off for a short walking holiday in the Lake District to clear my lungs…
Until next time.
To give our clients a different and uniquely informed perspective on the financial markets, Capital Spreads introduces “The City Insider”, a fortnightly view from a City expert, with a senior network of influential bankers, investors, economists and analysts. The identity of the Insider is anonymous – and a closely guarded secret – in order to allow our expert to express forthright, personal views and to protect the identity of the City figures upon whose opinions the Insider draws.
by City Insider
Are China’s fortunes about to go pop?
Apr 27, 2012 at 2:43 pm in Market Commentary by City Insider
THINK back to when you were a child. You blew a bubble, it grew and eventually it burst.
That’s how some of my former colleagues in Hong Kong are feeling about China’s prospects at the moment – something I experienced first hand last week.
During a visit to some of my old haunts from the 1990s, I was astonished to find that the shop where I used to buy newspapers (and the occasional cigar) now sold Dior and Fendi. “China’s going to hell in a handbag shop,” quipped one bearish friend. Things had certainly changed since I lived out there.
There has been very little economic news to get excited about over the past two weeks. Britain is officially back in recession, Spain is on the brink of disaster, and a shrinking manufacturing sector and slowing growth in China are making economists I know ever so twitchy.
It’s been a difficult week for George Osborne, forced to defend his programme of austerity, which is clearly taking the country down the road of no growth. But with the national debt now exceeding £1 trillion there is no prospect of a let-up in the Government’s deficit-cutting drive.
Economists tell me fiscal policy is likely to continue to weigh on growth in the coming months. Figures to be published next month are expected to show the eurozone also went back into recession in the first three months of the year, although France and Germany – with lower deficits and a lesser need for austerity than Britain – may escape. Pretty gloomy stuff nonetheless.
China, which is supposed to be the global economy’s saviour, is also in bearish mood. The country’s manufacturing sector shrank for a sixth month this month and the government has cut its growth target to 7.5pc – the lowest since 2004. Still, that would be an incredible rate of growth by any major economy’s standards, and chums tell me it’s not time to retreat in despair just yet.
In terms of commodities, resurgent economic problems should be positive for the gold price yet the precious metal has remained subdued. Indeed, there appears to be a debate going on about whether now is the time to turn negative on gold.
According to IMF data, central banks from emerging economies bought large quantities of gold in March.
However, this is unlikely going to propel the price higher – the issue is prospects for the dollar, which has an inverse relationship with the price of gold.
The UK’s double-dip is negative for sterling, mounting opposition to austerity in Europe could hit the euro, but it’s the likelihood of QE3 in the US that is more important. More easing should boost gold, but if the Fed remains cagey about its operations the price could fall further. The most recent Fed meeting left the door open for more easing.
Oil inventories are also almost at the highest level in a year, so the price of black gold could be set for a tumble too.
Over in China, the scandal surrounding disgraced politician Bo Xilai continues to hog the headlines. With Xi Jinping expected to succceed Hu Jintao as president next year, there’s also feeling of refom in the air, which could eventually help settle currency market volatility.
One thing’s for certain, the quality of the air in mainland China remains awful. I’m off for a short walking holiday in the Lake District to clear my lungs…
Until next time.
To give our clients a different and uniquely informed perspective on the financial markets, Capital Spreads introduces “The City Insider”, a fortnightly view from a City expert, with a senior network of influential bankers, investors, economists and analysts. The identity of the Insider is anonymous – and a closely guarded secret – in order to allow our expert to express forthright, personal views and to protect the identity of the City figures upon whose opinions the Insider draws.