José Rasco, chief investment strategist at HSBC Private Bank, joins Business Insider’s Sara Silverstein to discuss his outlook for the market. Rasco still likes U.S. equities but he says if you want to invest in an area where there is going to be growth, you want to be in Asia. In this clip Rasco expands on his thesis for China. Following is a transcript of the video.
Sara Silverstein:Can you expand on your thesis behind China?
José Rasco:Well, China is at an inflection point where they have some negative demographic issues going on due to the one-child policy of years ago. That’s starting to reverse, but more importantly they’re at an inflection point because they need to increase productivity and they need to continue to spend to create jobs. So what we’re seeing is this One Belt One Road,for example. That’s a major global program where they’re spending trillions of dollars a year and trying to build this program out for the next decade. This is something that you’re going to see shipping costs reduced, you’re going to see time of goods to market reduced from central China to Istanbul.I think it went from like three weeks to less than five days,so that kind of productivity bounce is going to be huge for that market and for the markets that are surrounding it. It’s going to touch about two thirds of global GDP. It is a major infrastructure project and it’s going to have positive effects on commodity producers in emerging market countries in Africa and Latin America in particular, and they continue to demand finished goods from theUSand Europe to help produce this road.
Now what this road and the shipping lanes in the South China Sea, etcetera will do, is they will improve productivity and as a result we will see better multiples and better opportunities in Chinese markets and we’re going to see more bonds floated in markets, not just in China,but in Europe and theUSas well.So there will be opportunities forcorporate bond investors as we go forward. These are major global companies that will be issuing bonds, sometimes inRMB, sometimes in other currencies, but they will be issuing these bonds to help pay for these projects and these projects are going to be lasting for quite a while. So that’s a major thing.
The other part of it is, China has had a great deal of pollution over the last 25 years as they built out using antiquated methods of energy production and all that coal,etcetera. They are making major strides in energy production and using alternatives, and cleaning up the environment and then last but not least is the digitization of the economy. If you look at some of the larger companies that are out there providing logistics and services like an Alibaba, companies like that, we’re seeing tremendous gains in productivity, and they’re reaching into sectors as far flung as food, and like we’re seeing here with Amazon, food, healthcare, etcetera. So, real opportunity where the Chinese consumer is now using the digital wallet a lot more than western consumers are. And don’t forget, in China I think less than a quarter of the population hassmartphonescurrently. That number is set to explode over the next decade which means use of digital products, and consumer e-commerce is going to soar. Are you familiar with Singles’ Day?
Silverstein:Oh yes, absolutely.
Rasco:So Amazon has its Prime Day, where they did a billion dollars in sales last year in July 11th. Singles’ Day last year, Alibaba did 18 billion in sales. That shows you, even though they’re at their infancy in terms of e-commerce, the middle class in China is set to explode, and the ramifications on global trade, companies here that produce products they want to buy, is absolutely monstrous. So that digital combined with the infrastructure spending provides growth, income, wealth and it should provide some stable inflation as well which is all good for markets.
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