Salient to Investors:
Sudakshina Unnikrishnan and Jian Chang at Barclays say should China’s growth dip to 3 percent in the next 3 years, copper would fall more than 60 percent, zinc by up to 50 percent, and oil to $70 a barrel. They cite risks of slowing industrial production and of financial stress due to debt of companies and local governments, and Likonomics inflicting short-term pain.
Zhang Zhiwei at Nomura sees a 1-in-3 chance of Chinese GDP dropping to below 5 percent for four consecutive quarters starting at or before Q4 2014, and says a growth rate of 5.9 percent in 2014 would lead metal prices to fall as much as 30 percent and oil prices as much as 20 percent. Nomura expects Chinese growth of 6.9 percent in 2014, but said a growth rate of 5.9 percent would trim 0.3 percent from world economic growth.
Societe Generale sees a non-negligible risk of less than 6 percent growth in 2013 and an outside chance of 3 percent average expansion for half2 2013 and half1 2014. In the event of a hard landing, Societe Generale said 1.5 percent would be shaved off global expansion in the first year, and would recommend selling copper call options and buy copper puts, buying the US dollar and Treasuries, and selling the Russian ruble, South African rand and the Chilean peso.
Andrew Polk at the Conference Board said trying to slow gradually is very difficult, partly because it’s a self-enforcing mechanism and can become a vicious cycle, and sees average growth in China of 5.5 percent over the next 5 years. Polk sees a distinct possibility that the slowdown could get out of control. Polk said Australians are overly reliant on China and the export trade, and have not done enough to diversify their own economy, so would be hurt.
Orville Schell at the Asia Society said he does not know if the world is ready for China’s growth below 7 percent – the Chinese economy is mortal and ultimately subject to the same kinds of cyclical growth as every other economy.
Stephen Roach at Yale said China wants enough growth to maintain social stability and prevent the economy from a more serious shortfall, so does not see a hard landing.
Jim O’Neill at Bloomberg said the notion of a soft or hard landing is simplistic, and China is adjusting in the right direction as gauged by the relationship between real retail sales and industrial production. O’Neill said 7.5 percent growth in 2013 and this decade is reasonable, and equivalent to the US growing by 4 percent in terms of world contribution – any further Chinese slowing would be big.
Barclays said quarterly growth dropping briefly to 3 percent within the next 3 years was increasingly likely, but expects 7.4 percent growth in 2013 and 2014. Barclays said even if growth slowed that much, China would bounce back rapidly afterwards.
Alaistair Chan at Moody’s Analytics said China is a gray swan, not a black one, because a hard landing won’t be totally unexpected and there may be a recession sooner or later, in which case it won’t be pretty for commodity exporters in the short run.
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