Nobody buys the idea that China will save the world. Rightly. China is just not big enough to drag the world out of the mire. Of course China is a major player in certain areas of the global economy e.g. commodities (it accounted for around one-quarter of global copper consumption last year, for example), but if the US and Europe continue to contract China is not going turn the world around on its own.
However, even if China is not going to save the world, it is our belief that:
(a) the very strong structural story (Chinese unit auto sales overtook America’s in February, China is already a larger mobile phone, TV, newspaper, beer, and radio market than the US in unit terms, it has been a far larger market in tonnage in steel, cement, and copper for some time etc. etc.)
(b) Chinese policy towards property, credit and infrastructure will gain traction sooner than generally expected making the Chinese economy one of the few to return to near trend growth next year
(c) the huge destocking that has been taking place will turn abruptly as inventories overshoot albeit significantly reduce demand – just look at the much stronger than expected Chinese PMI figures of late and the rise in the Baltic Dry Index
China and, by implication, Asia will be the first to turn. With current stock prices ground right down there are huge opportunities and relatively low risk. It is interesting to note that as Western equities hit new bear market lows, the closer the link that markets and sectors have to China the better the relative performance: metals, mining, industrial commodities, emerging markets have all been relative outperformers with the Chinese domestic markets actually going up. We believe this is set to continue.