Following on the footsteps of the International Monetary Fund (IMF) — which red flagged growth in China but said the country will continue to grow at a modest 6.8 percent in 2015 and 6.3 percent in 2016 — Shaun Rein, managing director, China Market Research Group, too said while the Chinese economy is weakening, it will still grow at around 6.8-7 percent in the fourth quarter.
According to him, though the Chinese economy is certainly weak, it is not as weak as most people are making it out to be. In fact he advised investors with a risk appetite to get into commodity stocks.
Below is the verbatim transcript of Shaun Rein's interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.
Sonia: The International Monetary Fund (IMF) also said that the impact of the China slowdown is greater than what was previously expected. What is your sense of how much the growth in China could slowdown to?
A: The economy here is weak. We expect growth to be around 6.8-7 percent for Q4 of this year. One of the negative aspects is that the Purchasing Managers’ Index (PMI) has shown that there is actually a retraction, the factory is shrinking, and it is about 49.7 percent. So the economy here is weak and however it is not as weak as a lot of people are making it out to be. There is too much panic in the equity markets and most importantly in commodities. So if you are a longer term investor with a stomach for risk, I would be looking at getting back into some of the iron ore and copper and gasoline because what we are seeing is the actual consumption of commodities is growing on fairly strong in China and it is still at a growth rate. We are not seeing a real massive recession when it comes to commodities on the actual consumption side.
Latha: This is more a near-term question; the Chinese markets will be opening after a gap of four trading holidays. What we hear from the Yum! brands results is that the China same store sales disappointed, they grew only by 2 percent, the expectations from the street was more like 6-7 percent, this and the purchasing managers' index numbers together, market could react a little bit to the PMI numbers but after that the holiday started. Do you think the markets will want to discount the bad news when China opens tomorrow?
A: I think the markets will do relatively well. You have seen the numbers; fairly strong retail sales during the golden week. I think Yum brands have dropped but that is because Yum brands are not a bellwether for consumption anymore, it is just a poorly run company in China right now over the last three-five years. They betrayed the trust of a consumer with their food quality scandals and they have been launching very odd discount promotions and poorly crafted strategies. So I think that Yum brands need to be separated from how consumption is going on in the market. This consumption story is still fairly strong.
However, I would be working more at companies like Nike, Starbucks, Adidas and Apple as looking at whether or not consumption is still strong and they are. You saw that Nike sales gone up about 30 percent last quarter in China year-on-year.
Latha: So your short point is that China's bad news is over discounted by global markets and experts?
A: Yes, there is definitely bad news here, don't get me wrong, there is a lot of weakness but it is in many ways a healthy weakness because the government isn't adding too much debt regarding fiscal monetary expansion which is smart. They are trying reign in some of the overcapacity on the industrial side and they are pushing more innovation, which I wrote in my last book, 'The End of Copycat China' and when you see the official service index, we are seeing growth of 53 number. So I wouldn't be too bearish on China's economy.
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