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US Investors Should Keep Interests Close to Home

US Investors Should Keep Interests Close to Home
(Dollar Photo Club)

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Tuesday, 19 January 2016 09:15 AM Current | Bio | Archive


As China has been the engine for global economic growth since the 2008-2009 Financial Crisis, it’s simply pure logic we try to look somewhat deeper into its Chinese economic data for 2015:
  • Chinese GDP grew by 6.8 percent year-on-year (y/y) in Q4 of 2015, which was the weakest growth rate since Q1 of 2009 during the Great Financial Crisis
  • GDP growth rate for the year of 2015 as a whole was 6.9 percent, which was its lowest growth rate in 25 years. (The just released IMF World Economic Outlook – WEO – forecasts China to grow by 6.3 percent in 2016 and 6.0 percent in 2017);
  • Industrial output rose by 5.9 percent y/y in December, below forecasts for a rise of 6.0 percent and down from November's 6.2 percent;
  • Retail sales growth also eased, falling to 11.1 percent y/y in December from 11.2% and below the consensus forecast of 11.3 percent;
  • Fixed-asset investment growth, a crucial driver of the economy, grew by 10.0 percent in 2015 as a whole, but also missing expectations;
  • Investment in the property sector fell to 1.0 percent year-on-year, which is its slowest growth rate in nearly seven years.
  • Power consumption rose 0.5 percent y/y, which is its smallest increase since 1974, according to the National Energy Administration. However, fitting with China’s so-called “tale” of two economies, power consumption in the services sector rose 7.5 percent. 

All these data confirm China is stuck in a protracted slowdown, which is bound to continue on its downward path. By the way this path was confirmed by the just released IMF World Economic Outlook (WEO) update.

Researchers at Citi now expect the Chinese GDP growth rate to be at around 5 percent in 2020, which is completely in the cards when we look at the latest IMF data.

When we, as investors look at the just released “Chinese” data in “money” terms as well as at these data in U.S. dollar terms we get a not-so-pretty picture.

The so-called “money” GDP rose about 5 percent in Q4, which puts the credibility of the 6.8 percent Q4 growth rate into doubt.

Now, when we look at these data in U.S. dollar terms we have about a 2 percent (!) growth rate, which is “key” to Chinese companies and in fact to anybody who takes on debt over there because everybody has to “service” its debt and that becomes really “difficult” in a shrinking economic environment.

Whatever the first reactions in the markets could be (bad news means good news), the real numbers hint we should not be surprised downward pressure on the Chinese currency could intensify further down the road, which, and this is important for all investors, in case the renminbi/yuan (CNY) should move substantially lower, something like about 10 percent, there is no doubt that would cause serious spikes in volatility.

All that said, the just released IMF – World Economic Outlook (WEO) update gives a somber outlook on the growth prospects in most places on the globe.

In its first 2016 WEO update,  the IMF warns unless the key transitions in the world economy are successfully navigated, “global growth could be derailed” while emerging markets and developing economies would take the hardest hit.

Some (not all!) of downside risks the IMF refers to are:
  • A sharper-than-expected slowdown in China;
  • A further appreciation of the dollar;
  • A sudden rise in “risk aversion;
  • An escalation of ongoing geopolitical tensions.

In simple words, all this means as a U.S. based investor who aims to limit risks for his/her investments, it would be wise not to look beyond your U.S. borders for some time to come.

Etienne "Hans" Parisis is a bank economist who has advised global billionaires and governments on the financial markets and international investments. To read more of his articles, GO HERE NOW.

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HansParisis
A U.S. based investor who aims to limit risks for his/her investments it could be wise not to look beyond your U.S. borders for some time to come.
investors, stock markets, economy, global
635
2016-15-19
Tuesday, 19 January 2016 09:15 AM
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