China fears overstated; oil may recover in early 2016: JPM

With the global markets trading mixed, James Glassman,Senior Economist JP Morgan is of the view that the China worries are overstated and more than the Chinese data they could be related to its currency. The uncertainty of what the authorities there are upto is causing worry.

According to him China growth fears and the fear of potential capital outflow is unnecessary because Chinese government has good control over the flows. Talking about the Brent crude which is at a 12- year low, Glassman says one is not sure why the oil prices are falling because the oversupply issue is not unknown, adding that although  it is negative for the oil producing nations, it is benefit for many economies, especially Asian markets.  However, he would not be surprised if oil prices recovered in early party of 2016.With regards to investments, he says these jolts in the global market provide good investment opportunities and these could be found in markets like India, US etc. Globally, most economies are pushing hard to steer them on a growth path, says Glassman.Below is the verbatim transcript of James Glassman's interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Latha: Is it that the global markets have over-discounted China? After all we have got just one purchasing managers' index (PMI) data which indicated a 40 basis points (bps) fall which is par for the course. Did the data from China merit an evaporation of USD 3.5 trillion in marketcap, is there therefore some kind of a green around the corner?A: I don’t think the market reaction merited this because I think it is not so much about the data which has not been very compelling but it has been more related to fears about the currency and trying to figure out what the Chinese are up to. I think the problem is that people understand China is struggling a bit and the currency has been rising a lot and so export growth is slowing down. So there is a fear that the Chinese have suddenly woken up and didn’t realise what is happening and now are about to devalue the currency. I think that is a growth exaggeration and I think the Chinese officials are beginning to push back on that idea.I think there is a fear that there is potential capital flight taking place, that is a strange idea because indicator China -- Chinese government has a lot of control over capital flows and the Chinese government have a lot of reserves to work with. So I think the problem is it is still an unknown story and I think we have a large countries going through stresses and then you see the potential for significant currency change and there is nothing new about the global economies that I see in the last three months. There is no reason thinking that the global economy is in trouble. So I think these fears are exaggerated and maybe there has been some miscommunication about what exactly is the intention of the Chinese officials is.Sonia: The Chinese fears have overstated but what about the way crude had sold off? That is a damage that many industries will have to bear across the world, how worried would you be about brent at 12-year low and its impact on several economies?A: Maybe the two are connected because in the past, we used to associate a rising dollar with the weakness in the currency and the oil markets because oil is based on dollar but I think it is a strange worry for many of us because it is true when oil prices go down, it does a lot of damage to the oil producing region, to the oil producing industries but the truth is many more people benefit from that. So as an economist thinking about what does this mean for the global economy, it is hard for me to conclude that this is a negative thing.The lower oil prices is a benefit for many people, consumers in particular, and I think the problem is, it is not clear why oil keeps going down. We know there is more supply in the world but that story is well known for long times. So I have a feeling that when markets go in one direction, it sort of keeps moving and then people dream up all the stories about why there is an oversupply and I wouldn't be surprised if things stabilise and over the course of the year we see oil prices moving back to the range where it was before but for now this cannot be a negative in terms of its economic impact for much of Asia, for much of the American continent, Europe, it is a big problem for Middle East, Russia, Venezuela, Mexico, Canada, some of the oil producing countries.Latha: What would your advice be to a fund manager, what should be the economies he should bet on in early 2016?A: He should think about what are the global opportunities and the global fundamentals in the global economy. I think some regions are struggling more than others and some of the emerging markets are struggling more than others but I think that everybody is trying to push harder to tell you these are economies moving faster and when you look at the US and when you look at the Japan and you look at Europe, growth may be slow but it is moving in the right direction.So I would say, the reasonable story is to bet on global growth, low inflation, more growth and it is going to be more challenging to try to find the opportunities because these equity markets -- equity markets are always ahead of the reality and the problem is markets are not cheap anymore though it becomes more difficult to find the opportunities.We had jolts like these in the global economy, there are opportunities and I think the opportunities right now are in much of Asia, India in particular, I wouldn’t be too negative on China, I think there are a lot of resources and a lot of ability to manage that and I think I wouldn’t be surprised if obviously in next couple of months if we begin to see more signs of stability even in China where the worries have been concentrated.