Tim Moe Upgrades His China Call

Tim Moe, Goldman’s chief Asia-Pacific strategist, was on Bloomberg recently to discuss the firm’s outlook for the region and the Chinese markets. Some highlights below:

  • Recent upgrade of China is in the context of the overall regional outlook
  • Three key issues likely to be determining equity market performance over the next few quarters
  • First, reflation dynamic is “very much in play” – improvement in nominal GDP growth (an increase in inflation) and a better operating environment is flowing through to corporate earnings and market performance
    • In China, they expect a 270 basis point increase in nominal GDP growth despite mild deceleration in real GDP growth
  • Second, global growth momentum is peaking right now and will probably start to decelerate in the next few months. According to Moe, we are now likely “past the sweet spot” in terms of the momentum of growth
  • Third, risks that were latent in the early part of the year are now coming more fully into focus – Fed likely to raise rates, a stronger US dollar, trade issues etc.
  • Putting these things together, they want to go for parts of the region which have more unique and specific drivers. In the case of China, these include:
    • Supportive policy measures leading up to the 19th Party Congress at the end of year
    • Southbound flows coming into Hong Kong
    • Global investors being underweight China at near record levels (for the past decade)
  • Re the upgrade of Chinese banks, GS favours the larger banks that have better asset quality and are at a better intersection of growth and valuation 

You can find the embedded video below and the supporting Bloomberg article here. On a related note, make sure to also read Cederberg Capital’s recent “Why China Now” presentation – you can find the link via my last post.