China’s economic transition from investment-driven growth towards a more sustainable market-based model focused on services and consumption appears to be well underway. However, achieving a smooth transition is being made more challenging by several structural obstacles.
In this paper, we look at some of these structural issues, focusing on how excessive levels of leverage and industrial overcapacity have the potential to derail China’s economic transition. We also examine how China’s capital account is coming under pressure as the country embarks on a programme to liberalise its exchange rate regime.
Market confidence has been badly hurt in the opening weeks of the year as investors worry about the possibility of a global recession. We believe these fears are probably overdone and investors should take a step back and look at the big picture, particularly in the eurozone.
The eurozone saw moderate economic growth in 2015 of around 1.5%, and we see several reasons why this momentum should be sustained this year, including further support from the European Central Bank (ECB), more supportive fiscal policy and cheaper energy.
Some European sectors and companies will be negatively affected by weakness in global trade and the slowdown in China and other emerging markets. On balance, however, we believe that the domestic drivers for eurozone growth can offset these negatives. In this note we briefly outline those positive forces and restate the case for active investors to retain their exposure to regional risk assets.
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