That sighing sound you hear from China… is strategists everywhere cutting their GDP forecasts

That sighing sound you hear from China

Kate Mackenzie

| May 15 09:45 | 1 comment Share

… is strategists everywhere cutting their GDP forecasts. Last week Standard Chartered’s China economist Stephen Green and his team slashed their 2013 forecast to 7.7 per cent from 8.3 per cent. Their 2014 forecast was cut to 7.5 per cent from 8.2 per cent. Today, BAML’s Ting Lu cut to 7.6 for both 2013 and 2014, from 8 per cent and 7.7 per cent, respectively. It seems that April data has dampened any hopes that the Q1 surprise of just 7.7 per cent growth was due to simple base effects such as a missed leap year day or variations in the Chinese New Year holiday. Here are charts of Green et al’s favoured indicators suggesting that this economy won’t be powering back to 8 per cent levels of growth: What went wrong? Green cites a slow and patchy real estate recovery and pressure on local government investment vehicle cash flows, plus slow land sales outside big cities. BAML’s Lu says that, unusually, the quarter-on-quarter rate will keep rising: To be sure, we continue to expect a recovery of sequential growth; however, we have decided to revise down quarterly year-over-year GDP growth as well as annual growth in 2013E. More specifically, we maintain the view that sequential growth (QoQ, seasonally adjusted but not annualized) could bounce from 1.6% in 1Q to around 1.9%-2.0% in 2Q-4Q this year, but we cut quarterly YoY growth to 7.7%, 7.6% and 7.5% in 2Q, 3Q and 4Q (vs 7.7% at 1Q13) from the previous 8.1%, 8.0% and 8.0% respectively. Interesting, but we’re not sure of the significance of the non-annualised quarter-on-quarter figures; it’s true the non-annualised figures have moved around a lot since they were first published a couple of years ago, but most countries give annualised figures so figures like 1.9 per cent growth probably aren’t going to float many people’s boats. Lu however argues that the focus on the year-on-year figures might leave investors overly spooked and, in turn, lead to a more bullish tone if/when the focus shifts. We’re a little more sceptical that the favoured data points change any time soon, considering China’s main quarterly GDP growth number is already quite unusual. Another bullish theory was that the surge in credit growth, particularly in March, might just take some time to generate more growth. Credit data for April however showed that even if that’s the case, it’s not a sustained surge anyway:  Finally, the chance of a renewed stimulus push looks ever less likely (not that many pundits have been openly expecting this anyway). From Bloomberg News: “To achieve this year’s targets, the room to rely on stimulus policies or government direct investment is not big — we must rely on market mechanisms,” Li said in a May 13 speech broadcast to officials around the country, according to a transcript published last night on the central government’s website. Relying on government-led investment for growth “is not only difficult to sustain but also creates new problems and risks,” he said. Incidentally, Green says big stimulus is unlikely unless unemployment begins to look like a problem. Makes sense.


About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: