China Economy to Improve After Leadership Change, BlackRock Says
China’s economic growth is poised to recover after the country’s once-in-a-decade leadership transition, bolstering the outlook for stocks across Asia, said BlackRock Inc., the world’s biggest money manager.
Vice President Xi Jinping is forecast to succeed President Hu Jintao as head of the ruling Communist Party at a congress that starts Nov. 8 in Beijing.
“Once we get through the leadership change, both in the U.S. and also in this part of the world, I think we’re going to see a much healthier base from which we can have growth within the expectations of China,” said Mark McCombe, BlackRock’s Asia-Pacific chairman, during Bloomberg Television’s Titans At The Table program which aired yesterday.
BlackRock joins Citigroup Inc. in saying policies to boost China’s growth, which was the slowest in three years in the second quarter, will be clearer after the leadership change. Other analysts, including Haitong Securities Co.’s Chen Ruiming and Bank of Communications Co.’s Hao Hong, say China will struggle to reverse the slowdown.
China’s economy grew 7.6 percent in the April-June quarter as the European debt crisis sapped demand for exports and a campaign to rein in home prices eroded domestic consumption. The economy may expand 7.7 percent this year, according to the median forecast of 45 economists in a Bloomberg survey, which would be the slowest annual rate since 1999.
Investor confidence will rebound as the nation’s new leaders take steps to focus on domestic consumption as a driver of growth, Jing Ulrich, Hong Kong-based chairman of global markets for China at JPMorgan Chase & Co., said in the same Bloomberg TV program.
The government has said it aims to reduce China’s reliance on investment and exports for growth and boost the role of consumption in the economy. McCombe, who is based in Hong Kong, said that focus on consumption will benefit health-care and education stocks.
China’s economic recovery will boost stock markets and also help “with foreign investment dollars coming into the region,” he said.
The MSCI Asia Pacific Index (MXAP) rose 6.9 percent this year through Oct. 9, trailing the 11 percent gain for the MSCI World Index. The Asian benchmark trades at 12.7 times estimated earnings, compared with 13.2 times for the MSCI World.
“A lot of the Asian equities are actually inexpensive relative to their long-term growth potential,” Ulrich said on the same program.
At the same time, data for the past two months point to a deepening slowdown in China after manufacturing contracted in September, imports unexpectedly fell in August and industrial companies’ profits dropped for a fifth month.
The People’s Bank of China has also refrained from introducing further easing measures since interest-rate cuts in June and July and a reduction in reserve requirements for lenders in May, amid concern more liquidity will boost property prices and inflation.
“In the next 12 months, I am not that optimistic as the economy hasn’t stabilized,” Chen Li, UBS AG’s head of China equity strategy, said in a phone interview from Shanghai on Sept. 27. “The transition of leadership will have some impact. With new leaders, there will be some change to policies and this is what investors are concerned about.”
The International Monetary Fund cut its global growth forecasts this week as the euro area’s debt crisis deepens. The world economy will grow 3.3 percent this year, the slowest since the 2009 recession, and 3.6 percent next year, compared with July predictions of 3.5 percent in 2012 and 3.9 percent in 2013. Washington-based IMF now sees “alarmingly high” risks of a steeper slowdown, it said in its World Economic Outlook report.
“We had seen a deceleration in the macro economy, as well as corporate earnings” in China, Ulrich said. “So that’s confidence temporarily lost. Hopefully confidence will be regained some time in the coming months as the Chinese new leadership takes over.”
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