The co-manager of the Liontrust GF Global Strategic Equity Fund said recent data points have confirmed this view. Perhaps the most important of these in April was industrial profits being up 11.7% year on year, the best growth since June 2014 and a sharp acceleration from the negative prints of 2015, he noted.
“This positive momentum in industrial profits should help drive earnings upgrades and provide support to the equity market,” said Cadell. “But with a collapse in economic activity no longer imminent, China bears have returned their focus to China’s corporate leverage. In our view, China has the time and capability to stop a systemic debt crisis and we do not anticipate anything approaching a ‘Lehman’s Moment’.”
Cadell also noted that in his view China’s absolute debt levels are reasonable by international levels, they are almost entirely domestically funded, and the government remains the ultimate backer of lenders and most of the troubled borrowers.
Other factors in China’s favour include a high savings rate at 48% of GDP, which means the expansion in debt has been matched by a growth in deposits. This has meant China remains a net creditor to the world and is “not reliant on fickle foreign capital.”
Cadell did have some words of caution however. “We expect non-performing loans and defaults to rise but expect this to be an orderly credit cycle, not a crisis,” he said.
He is not alone in his relatively upbeat take on the world’s most populated country. Matt Sheldon, co-portfolio manager on the KBI Water Strategy, recently returned from two weeks in China visiting companies, and left with a positive feeling.
