Daily Management Review

While BlackRock sees Only Bumps in Road, Bank of America Sees China Crisis


09/28/2016




While BlackRock sees Only Bumps in Road, Bank of America Sees China Crisis
The Bank of America Corp. is of the view that because of China’s debt woes, there can be a financial crisis in China at any time. On the other hand cautions of only financial “bumps along the way” were issued by the BlackRock Inc.’s head of Chinese equities whi said that the Chinese government has room to move.
 
These views were expressed at Bloomberg Markets Most Influential conference in Hong Kong on Wednesday by David Cui, Bank of America Merrill Lynch’s head of China equity strategy, and Helen Zhu of BlackRock who were among speakers there. Views on the risks posed by China’s explosive debt growth since the global financial crisis were given in s snapshot in the session.
 
Since it was almost impossible for China to grow out of its debt problem, Bottom of Form
While Cui was of the view that a crisis could happen at “any time” and seemed to be inevitable, even as Cui didn’t argue that a crisis was imminent. A “huge” one-off devaluation may follow a decline in the nation’s foreign-exchange reserves, even while the government has the resources to support the yuan for the next year or so, he said. Ahead of its addition to the International Monetary Fund’s reserves basket on Oct. 1, the yuan has stabilized since sinking to a five-year low in July.
 
China wouldn’t have the imminent hard landing that “so many people have been waiting so many years for,” claimed Zhu and added that she was bullish about the Chinese economy on this aspect.
 
Zhu said that “perhaps in three to five years time, we can then think about a stable leverage and eventually a deleveraging,” while mentioning that the pace of a build-up in leverage had slowed in recent years. She said that the long and painful process of shifting credit away from the likes of “zombie” state-owned enterprises to more productive enterprises had been started by the nation and it was another promising sign.
 
According ot CLSA Ltd., from 261 percent in the first half of this year, China’s debt-to-gross domestic product ratio may blow out to 321 percent in 2020. A warning indicator for the nation’s banking stress has risen to a record, the Basel-based Bank for International Settlements said earlier this month.
 
Zhu argued that the government hasn’t run out of time yet even while admitting that it needs to move urgently in areas including the restructuring and refinancing of debt. She said that the funding costs for some companies could increase as implicit guarantees disappear and the “bumps along the way” could include trust and corporate-bond defaults due to that.
 
He was tired of hearing predictions that there would be a sudden fall in the yuan, said David Bloom, the global head of currency strategy at HSBC Holdings Plc at the same conference. He said that the currency “is going to sell off very slowly.” “You want a painful slow trade, go for it,” he said.
 
(Source:www.bloomberg.com) 






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