“There is nothing very new happening in China, yet, on the macro front,” he said. “It is] probably growing in the vicinity of low-5% per annum. This is weak, as we have said for a long time. It results from the combination of economic restructuring, monetary tightness and global economic weakness.“
Saint-Georges said that what is new is a combination of the end of US QE, which among other things, starting the unwinding of the FX reserve accumulation that China had started back in 2003; a loss of confidence in the Chinese authorities both by domestic and international economic actors and the publication of ‘scare stories’ on a Chinese uncontrolled slowdown.
“This is unwarranted in our view, but is important for investor sentiment,” he added. “These new events create the risk of capital outflows from China which would have multiple consequences,”
According to Saint-Georges these consequences include a risk of further depreciation of the renminbi putting more pressure on other EM currencies, the export of deflation to developed markets, Upside pressure on US treasury yields, and an ultimate negative, deflationary impact on consumer and corporate investments in developed economies.
“In theory, developed market central banks could certainly announce more QE,” he noted. “Or China could find a way to reassure markets and ensure control of outflows.”
“These stakes justify the high level of cautiousness in our global investment positioning,” Saint-Georges said.
