Hainan, China
The FT reports that China may be as important to the global investment outlook as the pro-growth reforms that Trump administration is trying to put into place.
In the case of Donald Trump, expectations that the US president would act swiftly to push though tax reforms, deregulation and bold infrastructure investments are starting to ebb as signs of administrative delays proliferate.
For China, an ebullient first quarter of GDP growth is giving way to anxieties that the world’s second-largest economy may have peaked. This belief has already depressed the prices of key commodities, upon which the fortunes of several emerging markets depend.
All this, coupled with mounting geopolitical risks in North Korea and Syria, combined this week to push down the yield on the US 10-year Treasury note — a bellwether for the world’s economic prospects — to its lowest levels since November last year. Lower Treasury yields reveal declining confidence in the US and, by extension, global growth…
Others see dwindling Chinese dynamism as a defining headwind. China’s GDP growth of 6.9 per cent in the first three months of the year — its fastest expansion for 18 months — helped to propel the global prices of oil, iron ore, copper, aluminium and other commodities higher.Lately, however most metal prices have retraced their steps. The price of iron ore, an important export for countries such as Brazil, Russia, Australia and India, fell to a near six-month low this week. Copper, which is important for the economies of Chile, Peru, Zambia and Russia, has lost about 10 per cent of its value over the past month. The price of Brent crude oil has also slipped over the past two weeks.
Concern over China, which is the biggest importer of oil and base metals, is mainly that Beijing’s efforts to rein in a credit bubble will start to hobble growth, precipitating corporate defaults and squeezing investment demand. Already, nine bond defaults have occurred in the first three months, a record for a first quarter.
“Credit expansion, which was the main reason for the better performance over the past nine months, has certainly slowed recently under the influence of regulatory tightening on formal lending,” says George Magnus, an economic consultant and former chief economist at UBS, an investment bank.
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Jeremy Jones, CFA
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