UBS’s Jonathan Anderson on China
What has changed in China in the last three months?
Fear has changed. We have seen China tightening. We have seen a lot of stress in parts of the economy. People have been selling down over the last two months, and all sorts of horror stories have been floating around the press. We are seeing some small and medium companies and developers and local governments again coming under threat of bankruptcy. There is some cooling of capacity. But the interesting thing is, if you look at the demand side of the economy, for the last six months things have been quietly moving ahead. And as a result, we find ourselves in the soft rather than hard landing camp. And, in fact, we are buying commodities at the moment tactically.
There is volatility in the Chinese equity markets. They are down 28 percent, 29 percent from the 2009 peak. Do you wake up every morning and say there is just incredible equity value?
There is equity value, and we certainly do like the China market on a structural basis given what we expect to see. The question really is what turns that around and gets people thinking about China in a different way. I do not think there is going to be one big catalyst like a super stimulus easing policy coming down. I think it is really more waking up over the next two to three months and investors gradually realizing that this place is not falling apart.
Tell me about inflation and what you see for 2012.
Inflation is peaking. It is still up around the 6 percent range for consumer prices. A lot of that is food. Keep in mind core inflation is well below. And the all-important price for the consumer basket is pork, and now what we have are pork prices that are starting to fall again from very elevated levels. We expect inflation to be coming down toward 5 percent, say, by the first quarter next year and staying around that range. We are not looking for inflation to disappear.
Can they create jobs for next year? I mean, is the job machine of China going to be healthy in 2012 and 2013?
Well, bad news and good news, right? The bad news is a slowing economy. That is going to show up in places like construction. And exports actually are going to be fairly weak in our view. And those are some of the most labor intensive parts of the economy. The good news is that there is not a lot of supply coming into the labor market. China does not need to generate 10 million net jobs anymore. So China for the next five years is an economy that really needs to keep jobs around, not create them en masse.