Source: www.askmariosingh.com
In general, no economy intends to lead global recovery since economic activities are highly sensitive to the direction of policies. The Euro Zone crisis is definitely not over and the two largest economies in the world present signs of entering another cycle after implementing aggressive monetary policies. It is still too early to say who will be the emancipator in 2013; it could be the U.S., China or even Japan.
Overall, sound performances of global equities are merely driven by the trimmed tail risk born last year, due to various global central banks squeezing out risk premia as much as they can, especially the European Central Bank (ECB). There is less correction across the board until now, which still echoes with low Vols and a “bull run” in the near term. Merge & acquisition (MA) deals increased sharply this year, while the rest of the world presented decreased activities.
Back to fundamentals, imports from the two largest economies deteriorated since the beginning of 2010, largely due to the outbreak of the Euro Zone debt crisis. In other words, U.S. and Chinese growth failed to increase external trading revenue in the currency bloc.Chinese economic challenges and equities market in the near run
The Positive Side:
China’s 4Q Gross Domestic Product (GDP) expansion rebounded to 7.9%, exports and industrial production showed strong momentum in 1Q, while retail sales tumbled as Xi’s corporate luxury spending and corruption knocked off. In addition, private sectors and small- and medium-size enterprises (SME) grew more confident on the back of government infrastructure spending, since the HSBC Flash China Manufacturing Purchasing Managers’ Index (PMI) rarely outperformed the official PMI. A lower-than-expected Consumer Price Index (CPI) in March eased recent concern that officials intend to tighten policy after a massive infrastructure investment.
Many challenges ahead:
On the shadow banking curb ruling, it may be too early to assess the real impact of infrastructure stimuli announced last year and its sustainability. Limited financing channels in the second and third quarters added to worries over the implementation of those projects. Fortunately, the amount of social financing suddenly surged in the fourth quarter. With the size of shadow banking estimated at as much as CNY30 trillion, or around 15% of total assets in the Chinese banking system, many call for more regulations on financing activities. Regulators already stepped in to curb shadow banking growth by tightening wealth management products (WMP), preventing systematic and default risks, financing stress may again appear among the SMEs.
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