China bears have been feeding on the deteriorating economic data coming out of the world’s second largest economy. Meanwhile, others remain bullish on global stocks because of excess liquidity.Credit Suisse just wrapped up its 15th Asian Investment Conference (AIC). The AIC included nearly 2,000 fund managers and 280 companies. Credit Suisse conducted a sentiment survey of its attendees. Here are the key findings and talking points on China, the U.S. economy, Europe and global stock markets.
- China and consumer were investor’s favourite but the sentiment was positive not wildly bullish. Investors were most bearish on Japan and utilities.
- On China, experts were negative over concerns about growth, real estate and non-performing loans. But they were bullish on the market with 60 per cent of hedge funds having it as most overweight in their portfolios.
- Over 35 per cent of investors predict that NJA (non-Japan Asia) would outperform other global markets.
- Most investors do not fear a Chinese hard landing (which is 4 consecutive quarters of below 5 per cent growth). Only 10 per cent of investors think Chinese growth will be below 6 per cent over the next five years, But 60 per cent believe it will be between 6 and 7 per cent over the next five years which is below consensus forecast of more than 8 per cent growth for 2012.
- Investors were most worried about oil prices in 2012 and 2013. Global inflation is expected to be the biggest risk to investors in 2013.
- They considered eurozone sovereign debt risk to only be a risk for this year but one that is likely to fade and not be a concern in 2013.
- Most investors are leveraged which Credit Suisse interprets to be an indication of a bullish market as the majority of investors have enough cash on the sidelines to support the recent rally.
And here are some anecdotal bullet points from the panelists on everything from China, the U.S. economy, and investing in global stock and bond markets:
- Prof Xia Bin, former member of PBOC Monetary Committee: “Real-estate and local government borrowing are the two main risks. Hiding them under monetary growth is not the best idea. We need to drain the pond to clean the bottom, without doing so, it is not possible to clean. If we do not do it now, it might be too late; so the system is now being adjusted at both central and local government levels.”
- A separate panel on China’s property market said the government will only loosen its housing policy after the situation in the sector gets much worse.
- Andrew Garthwaite, Managing Director, Credit Suisse – “Buy growth stocks and regions, dividend growth, equities in general will continue to be re- rated.” Garthwaite says real bond yields will be low for a long time to come and that excess liquidity should be good for stocks. Emerging market equities should trade at a premium, with Korea, Poland, Russia and China being the favoured markets.
On the U.S. economy
- James Bullard, President of the St. Louis Fed Reserve – U.S. growth should be 3 per cent this year but fundamental problems remain in the global economy like too much borrowing and too much sovereign spending. “This applies to the US as well. Far too many tough decisions in the US have been delayed / deferred until post the election. It is likely that these could be a source of volatility.”
- Bullard also said that inflation outlook, not just the inflation rate itself would trigger an increase in rates, employment rate or housing data is not likely to be a trigger. “It would be dangerous and wrong to assume that they target the monetary policy on a specific data trigger point.”
- Europe’s LTRO program has changed dynamics since deleveraging has slowed sharply after the LTRO as it gave banks time to improve their balance sheets and meet capital requirements. But governments and banks need to address structural issues. European banks however are in a fix since the have to raise reserves to meet regulatory requirements, but their governments also don’t want them to cut lending in domestic markets.
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