There's no shortage of enthusiasts for the Chinese economy over the next 12 months. Mark Mobius of the Templeton Emerging Markets Trust expects it to be the "Year of the Bull" and is predicting that "the emerging stock markets should witness a substantial recovery" with China leading the way. Jason Pidcock of Newton Investment Management believes that China "could well be the first economy to pull itself out of the mud". And over at Jupiter, they are so confident about the prospects for China that they are about to launch a new Chinese "sustainable growth" investment trust. It’s no surprise, perhaps, that all of these China enthusiasts come from fund management companies.
Economists and strategists are more gloomy. Capital Economics expects Chinese GDP growth to shrink from 9.1 per cent in 2008 to 5 per cent in 2009 (well below the OECD’s 8 per cent forecast). Barclays Wealth expects it to be "one of those hardest hit by the global recession", whilst over at Societe Generale, bearish strategist Albert Edwards has commented that "China is now joining the rest of the world in the stinking cesspit of uncontrolled economic slump".
The reality, as usual, will be somewhere in between these bearish and bullish forecasts. Much will depend on the strength of Chinese domestic demand. As an export-driven economy, China will undoubtedly suffer as demand dries up across the world. So the Chinese government's fiscal stimulus measures have been designed to boost domestic demand. As a BBC report this week rather depressingly concluded: "China’s salvation lies in peasant power". But there’s a lot of work to do, as the Chinese are generally keener on saving than on spending. Although recent figures show that domestic demand is holding up, there’s a long way to go if it is to salvage the Chinese economy.
So for much of this year, the fortunes of the Chinese economy (and by extension, its stock market) will remain closely linked to those of the rest of the world. As our cover feature points out this week , shares in emerging markets such as China of those elsewhere. Although China is one of the few countries expected to show growth this year, share prices there won’t start to recover until those elsewhere do. When that happens though, the recovery is likely to be explosive.
