The good news is that BNP Paribas Investment Partners, a big global and multi-affiliate manager, has provided clients in the Asia Pacific region with a reassuring view on the Chinese economic outlook. The bad news is that this is not necessarily a house view.
Chi Lo, the senior economist covering Greater China at BNP Paribas in Hong Kong, told Australian clients during a visit last week that the “true risk” with China was that fear would lead to a massive flight of capital. But this was a very low probability, he said.
As the senior economist for the region, however, his views are fed into the portfolio managers’ calculations , and they, too, have their own views. Then there are the views of the affiliate managers, who also have their own economists.
“Everyone is able to express a view as long as it is supported by research,” Lo said. Nevertheless, his views provide welcome relief from the general pessimism from global managers on the outlook for China and its repercussions around the world, especially for Australia. His key positive points were:
> China’s capital account is still relatively closed
> The yield spread between China and safe-haven vehicles is wide – Chinese wealth management products are paying 6 per cent plus a currency transaction fee of 3-4 per cent
> inflation is still very low, below 2 per cent nationally, and
> The RMB would need to drop by more than 10 per cent to make the switch out of RMB by Chinese investors worthwhile.
Lo predicted that, by three years from now, the RMB would become the world’s third-placed reserve currency, surposing the pound sterling and the Japanese yen (behind the US dollar and euro.
The domestic economy was shielding China from external forces while the Government bought time to push through its structural reforms, he said.