CHINA'S MACROECONOMIC PICTURE MAY BE IMPROVING, SAYS STRATEGIST ADRIAN MOWAT, BUT FINDING COMPELLING CORPORATE PROFIT OUTLOOKS REMAINS A CHALLENGE
SHOWS: HONG KONG, CHINA (DECEMBER 10, 2012) (REUTERS - ACCESS ALL)
ADRIAN MOWAT, CHIEF EMERGING MARKET AND ASIAN EQUITY STRATEGIST, JPMORGAN
1.REPORTER OFF CAMERA SAYING:
"We have had China economic data out over the weekend. What do you make of the momentum of China's recovery?"
2. ADRIAN MOWAT SAYING:
"Yeah, the data had shown a material turn in the last couple of months. We've had PMIs moving above 50. We've got broadly positive data, slightly better retail sales numbers, good IP numbers. So I think this is all helping support the move in the equity market which really started in September this year. And it seems consistent with the move in monetary aggregates, particularly total social financing, which began to pick up in the third quarter."
3.REPORTER OFF CAMERA SAYING:
"And we have trade data coming out today. What do you think it will say about the global slowdown? Will we see any signs of recovery?
4. ADRIAN MOWAT SAYING:
"No, I mean, the thing we look at with the trade data is the import data. I mean, often people say 'Oh I like the trade data because the current account surplus has grown." That's normally a bad sign in our view. What we really want is the current account surplus in China to narrow because there's a recovery in domestic demand in China. There's no strong evidence of a recovery in global demand. We had some relatively poor Japanese GDP numbers out today. Europe still remains relatively weak. The U.S. is okay but it hasn't really changed materially. So for the trade data, focus on imports, and if the economy is turning in China, then the import numbers should be picking up and the surplus should be declining."
5.REPORTER OFF CAMERA SAYING:
"And turning to Chinese companies and foreign takeovers. Is this a trend that is likely to continue given the current valuations of foreign companies and the fact that Chinese companies need to grow outside China?"
6. ADRIAN MOWAT SAYING:
"Look, the environment for M&A is generally pretty attractive regardless of who the buyer is at this point in time. Equity valuations are moderate and the debt markets are very, very vibrant. So you can fund acquisitions at very attractive levels. So this is sort of the global story with M&A. We have over the last couple of years seen Chinese state-owned enterprises going out there into the world and buying assets, maybe most notably in places like Africa. We now are seeing them doing relatively big purchases in developed markets and those are being improved. I think this is something we will see for many years to come, but I'm not sure if I would highlight this as a dramatic new trend. I think it's something that's been in place for a period of time. So the macro story for China is improving. The micro is a bit more of a struggle. So we have a modest underweight in China. Remember it is the biggest market in EM, but we struggle to go neutral or overweight because it's difficult finding companies where the profit outlook is looking interesting."
