"China and the US will play a leading role in technology fields and particularly digital technology, which is a result as they make continuous investment in basic research and gain huge earnings from commercialization of innovative achievements.” Michael Spence, Nobel Prize winner in economies, wrote on the website of Project Syndicate recently when looking back at the economic performance of 2017.
This is similar to outlook reports which were introduced by many foreign institutions lately. As the US Federal Reserve raised interest rate last week for the third time during last year, the era with cheap capitals may come to an end in 2018. Global economy is expected to maintain stable and moderate growth, and China’s economy will achieve quality growth next year. Investors place great expectations on topics about consumption upgrading and innovation of Asian economies including China with overturn of global technology.
China’s economy will see quality growth thanks to supply-side reform
2017 is a fruitful year for global economy. International Monetary Fund (IMF) raised outlook on global economic growth for many times. Many foreign institutions predicted that such momentum is expected to extend to 2018.
United Bank of Switzerland (UBS) predicted that global economy will grow by 3.8 percent next year, keeping stable with growth in this year. ICBC International thought that global economic policies won’t just focus on single-dimensional growth goal but will strive to gradually narrow gap in cycle of economy and finance so as to prevent systematic risk and guarantee long-term recovery.
Emerging markets will bring huge contributions to global economic growth. Cheng Shi, chief economist from ICBC International, forecasted they will contribute more than 70 percent to the global economic growth. The situation that they lead in global economy will be further strengthened in next a few years. Evolution of cycle of China’s economy will be equipped with new tenacity. As dividend of supply-side reform will be released, systematic risk will be removed and efficiency of policy tool will be improved, the transformation of new and old economic drivers will be accelerated in 2018.
However, Morgan Stanley said in the Blue Book of China’s Economy released in February and November of this year that China will become a high-income country in 2025, which is two years ahead of the previous schedule.
Xing Ziqiang, chief economist of Morgan Stanley China, said to reporter of Shanghai Securities News that as more efforts were devoted in deleverage and de-capacity, China’s economy will slow down slightly in the short term. But contribution of consumption will increase more and the economy will be less dependent on leverage. The quality of economic growth will be improved. Its medium and long-term growth is more anticipated. Morgan Stanley predicted that China’s nominal GDP will hike from current 12.1 trillion US dollars to 25.1 trillion US dollars by 2030.
A director about stocks of emerging markets from NN Investment Partners, an asset management company from the Netherland, said that China attaches great importance to improvement in quality and quantity, redistribution of income, pollution abatement and shift to upstream of value chain. These themes will take lead in economic growth.
An analyst on sovereign debt from the Bank of New York Mellon Corporation thought that as China strived to lower risk of economy and financial department, growth of credit, social financing scale and M2 will be much slower and China’s economy will enjoy a sound development trend. A growth model with less intensive in credit will provide better opportunity to China to maintain supply and demand of foreign exchange. This will also make it easier for China’s central bank to promote convertibility of capital account, which is important to ensure that renminbi remains shares in special drawing right of IMF in the long term.
Institutions rosy about assets like stocks, smart mobility and others become highlight
Some institutions argued that along with further recovery of global economy, the era of cheap capital will come to an end and central banks of many countries in the world will start to normalize monetary policy. UBS predicted that in 2018, the US and Canada will raise interest rates two times, Switzerland, Australia and New Zealand will have one interest rate hike, while Eurozone, the UK and Japan will keep interest rate unchanged. Meanwhile, the US and Eurozone will gradually quit from quantitative easing policy, while Japan will continue to carry out this policy.
However, Jeremy Steven, economist from Standard Bank Group, indicated that the US Fed will discontinue the quantitative easing policy gradually step by step. Therefore, such situation will keep lasting for a period. If negotiation on Brexit doesn’t end up with doing good to growth of the British trade, Bank of England may be even forced to remove the keynote of raising interest rate. He pointed out that as long as the gradualism continues, it is unlikely for assets of emerging markets to have substantial devaluation.
Liu Mingdi, head of Chinese stock research department from Nomura Research Institute, believed that Chinese listed companies may be better than companies of other countries in terms of stress tolerance ability when the US Fed shrinks its balance sheet in next several years. This institution is rosy about growth stocks of A-share market as China’s consumption structure is upgrading.
According to a report on global investment outlook in 2018 by Franklin Templeton Investments, Asian markets will offer extensive opportunities for investment. China attaching importance to consumption and other factors may create conditions for growth of economy and enterprises profits in the short and long term.
Lu Jie, research director from Robeco Investment Management, thought that valuation of A shares stays at reasonable level at present. It is estimated that future PE ratio of A shares is 15 times now, while it was 15.3 times on average in history. He is more looking forward to the performance of A-share market in 2018 as he considered that China’s economy will transform into a consumption and service-oriented economy successfully. Investment in infrastructure and the Belt and Road Initiative will stimulate demand, supply-side reform and state-owned enterprises reform will further advance consolidation of the industry, and synchronous growth in global economy will also boost China’s imports and exports.
Great hopes are placed in some specific sectors. Hu Yifan, investment director and chief China economist at UBS Wealth Management, thought that hi-technology will bring significant influence to global economy and financial market. She is particularly optimistic about big data, automation and robot, and intelligent going out. As electric vehicle gets popularized, China will embrace a turning point for elective vehicle industry in 2023.
According to outlook for 2018 released by UBS Wealth Management, Asian economy will increase by 6.1 percent next year. Innovation is becoming a factor to be reckoned with in the medium run. The company predicted that China’s expenditure in research and development will be more than that of the US in 2018.
The director from NN Investment Partners said to the reporter that it is a trial that MSCI includes A shares into international index. Increase in index weight will require China to prove that it can approach to international standards with next several years. By that time, China will become the world’s second largest stock market, which will surely make global investors interested in it.
This institution favors the stocks with long-lasting advantage and is rosy about such industries as consumption, medical treatment, education, tourism, software and fintech.
(Source: Xinhua Finance Agency&Shanghai Securities News)
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