Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Economics China’s currency devaluation is actually a positive ʀ Worries about China’s currency devaluation are overstated. In recent years, China’s yuan has appreciated significantly on a trade-weighted basis and its unit labor costs of production have soared, cutting into China’s competitive edge and contributing to declining exports. A modest depreciation of its currency is an appropriate adjustment that is positive for China’s economy and global performance. ʀ China’s economic growth is slowing gradually – continuing a trend of the last several years – and the transition toward more reliance on consumption and services is proceeding rapidly. The probability of a hard landing remains low. ʀ Consumers have a lot of purchasing power and the government will continue to implement further monetary and fiscal stimulus aimed at boosting domestic demand, offsetting the weakness in exports. ʀ News on China’s data and economic surveys must be put into the proper perspective: indicators that focus on China’s export-related manufacturing sector, like the PMI, can be expected to be negative, while indicators of consumer spending remain healthy. These reflect the transition in China’s economy. ʀ It may take a while, but eventually markets will become comfortable that China is not heading toward a hard landing, and that the negative responses to China’s modest currency devaluation have been excessive. China, market turmoil and US implications, 27 August 2015 The PBoC’s easing and financial reforms, 26 September 2015 Global Economic performance: influences of China, commodity prices and currencies, currencies, 29 September 2015 Global outlook 2016: the critical issues, 6 January 2016 China’s currency depreciation is generating worries in global financial markets on a number of fronts: that China’s economy is slowing faster than desired; that a Chinese devaluation would harm foreign producers; or that it may elicit a damaging currency war. These quick response market worries are vastly overstated. China’s economic growth is slowing – a trend that began several years ago – but is not collapsing. China’s exports are now declining, and its policy of allowing its currency to depreciate modestly following several years of significant appreciation on a trade-weighted basis is reasonable. Its additional monetary and fiscal stimulus similarly are appropriate policies to manage the gradual deceleration in growth and facilitate the desired transition toward a more consumer- and services-based economy. China’s devaluation is orderly and a necessary adjustment that better aligns China’s currency to its economic and financial fundamentals, including its faltering exports and sharply rising unit labor costs relative to foreign competitors. To the extent it helps to support China’s growth, it benefits China’s trading partners and global economic performance.In this regard, China’s currency depreciation is part of China’s solution and is not negative. Clearly, following several years of stunning growth during which China became the world’s second-biggest economy and its engine of growth, and the manufacturing hub of Asia, China’s growth deceleration and transition toward a more consumer-based economy will involve both internal and external adjustments. Global trade flows will be affected and a somewhat weaker currency can be expected. Global markets are recoiling at the recent sharp, disorderly declines in China’s stock market, but in reality, the market had risen too fast in the first half of 2014 in response to explicit government policies to pump up stock prices, and is now adjusting back to reality. In fact, the Shanghai composite stock index is now 50% higher than in mid-2014. It may take time for markets to adjust to China’s economic transition and the beneficial effects of an orderly currency adjustment. 1. We maintain our outlook that China’s economic growth will decelerate gradually and transition rapidly toward more reliance on domestic consumption and services.The probability of a hard-landing remains low. Mickey D Levy Chief Economist, US, Americas and Asia +1 646 445 4842 [email protected] 7 January 2016 Economics Following years of robust growth, China’s exports are now falling modestly and its export-related manufacturing is faltering. (Note that while China’s exports are declining, its imports are declining more rapidly, so for now GDP is growing faster than domestic demand.) Meanwhile, domestic consumption and services continue to grow rapidly, and households have accumulated significant purchasing power from several decades of rapid gains in personal income and extraordinarily high rates of personal saving. This will support sustained strong consumer spending. The government will take additional steps to stimulate consumption.The lifting of ceilings on yields on deposits in state-owned enterprise (SOE) banks and other financial reforms will increase personal income over time.More monetary and fiscal stimulus (primarily infrastructure spending) are expected as the government attempts to boost domestic demand to achieve GDP targets. Accordingly, China’s economic transition will continue to proceed rapidly, albeit with some bumps along the road. Source: China Customs/Haver Analytics (top); China National Bureau of Statistics/Haver Analytics (bottom) 2. China’s currency is overvalued relative to its shifting economic performance, and will be allowed to depreciate further. China’s sustained dramatic rise toward becoming Asia’s manufacturing hub and the world’s largest exporter of goods generated large demands for labor that pushed up wages in excess of productivity and resulted in sharp increases in unit labor costs.At the same time, China’s currency has appreciated significantly on a trade-weighted basis. The combination of rising operating costs of production and a stronger currency have begun to dull China’s competitive edge. The fall in exports increase the difficulty of achieving a smooth transition toward more reliance on consumption and services while maintaining a high rate of GDP growth. Monetary and fiscal stimulus may directly boost domestic demand but such policies do not directly address China’s primary weakness, its declining exports. With productivity gains ebbing, a weaker currency is an effective mechanism to stabilize China’s exports. Under current conditions, if the currency does not depreciate, an “internal depreciation” can be expected in the form of lower real wages. 2 Economics Source: CSSB/CNBS/MoLSS/Haver Analytics 3. Economic indicators of China’s export and manufacturing sector have been decidedly poor, while indicators of China’s consumers have been decidedly more upbeat.China’s PMI survey index indicates declining manufacturing activity.While not a surprise, it is a disappointment to markets that had come to rely on China’s booming manufacturing. However,indicators of China’s consumer and services sectors remain healthy. Amid China’s economic transition, it is important to put the data and survey results from different sectors in their proper perspective. Most likely, nervousness will prevail until skeptics are convinced that China will not incur a hard landing, and that may take a while. 4. As a large and open economy, with exports and imports sizeable portions of GDP, China’s currency plays an important role in influencing its international trade and capital flows. In the years before mid-2005, the Chinese yuan was pegged to the US dollar at a low exchange rate as part of China’s policies to stimulate exports. Since then, its value versus the dollar has been closely managed by the Peoples Bank of China (PBoC). Through year-end 2014, the yuan was allowed to appreciate versus the dollar (from 8.3 yuan/US dollar to 6.15 yuan/US dollar). In August 2015, the PBoC announced abruptly a minor depreciation to 6.33, and since then it has depreciated to 6.6 yuan/US dollar. With the US dollar appreciating versus the euro and yen, and by even more versus some emerging nations that are significant trading partners with China, the yuan has appreciated significantly on a trade-weighted basis; since mid2011 it is up by approximately 28%. At the same time, exports have flattened, private business investment spending and foreign direct investment in China have slowed, and some modest financial reforms that have begun to liberalize restraints on crossborder flows have allowed net capital outflows from China. These economic and financial trends suggest that China’s currency is overvalued. Source: Federal Reserve Board/Haver Analytics 3 Economics Source: JP Morgan/Haver Analytics 5. An appreciation of the yuan would improve China’s relative costs of production versus its trading partners, but all of China’s trading partners would be better off if a depreciation of the yuan helps to stabilize China’s tradeable goods sector and improve its economy. It is fully understandable that skeptics believe such policy actions reflect desperate actions by Chinese leaders to avoid undesirable economic weakness or that they may undercut the effectiveness of foreign manufacturers that are already burdened by a host of economic challenges. However, not responding to current conditions would be a costly mistake. As China transitions its economy, a moderate currency depreciation, under the circumstances, seems to be a reasonable and positive economic adjustment. It may take time, but eventually markets will sort out these adjustments and come to realize that its initial responses were excessively negative. 4 Economics Disclaimer This document was compiled by the above mentioned authors of the economics department of Berenberg Capital Markets LLC (hereinafter also referred to as “BCM”). BCM has made any effort to carefully research and process all information. The information has been obtained from sources which we believe to be reliable such as, for example, Thomson Reuters, Bloomberg and the relevant specialised press. However, we do not assume liability for the correctness and completeness of all information given. The provided information has not been checked by a third party, especially an independent auditing firm. We explicitly point to the stated date of preparation. The information given can become incorrect due to passage of time and/or as a result of legal, political, economic or other changes. We do not assume responsibility to indicate such changes and/or to publish an updated document. The forecasts contained in this document or other statements on rates of return, capital gains or other accession are the personal opinion of the author and we do not assume liability for the realisation of these. This document is only for information purposes. It does not constitute a financial analysis, investment advice or recommendation to buy financial instruments. It does not replace consulting regarding legal, tax or financial matters. This document is classified as objective for the purposes of FINRA rules. Please contact Berenberg Capital Markets LLC (+1 617.292.8200), if you require additional information. Remarks regarding foreign investors The preparation of this document is subject to regulation by US law. The distribution of this document in other jurisdictions may be restricted by law, and persons, into whose possession this document comes, should inform themselves about, and observe, any such restrictions. This document is meant exclusively for institutional investors and market professionals, but not for private customers. It is not for distribution to or for the use of private investors or private customers. Copyright BCM reserves all the rights in this document. No part of the document or its content may be rewritten, copied, photocopied or duplicated in any form by any means or redistributed without BCM’s prior written consent. © July 2015 Berenberg Capital Markets LLC 5 Contacts: BCM www.berenberg.com e-mail US: [email protected] EQUITY RESEARCH RESEARCH AEROSPACE & DEFENCE Andrew Gollan +44 20 3207 7891 Charlotte Keyworth +44 20 3753 3013 Ross Law +44 20 3465 2692 AUTOMOTIVES Adam Hull Paul Kratz BANKS Nick Anderson Adam Barrass James Burbridge James Chappell Andrew Lowe Eoin Mullany Peter Richardson Jonathan Sharpe BEVERAGES Javier Gonzalez Lastra Adam Mizrahi +44 20 3465 2749 +44 20 3465 2678 +44 20 3207 7838 +44 20 3207 7923 +44 20 3753 3014 +44 20 3207 7844 +44 20 3465 2743 +44 20 3207 7854 +44 20 3465 2681 +44 20 3753 3031 +44 20 3465 2719 +44 20 3465 2653 BUSINESS SERVICES, LEISURE & TRANSPORT Najet El Kassir +44 20 3207 7836 Stuart Gordon +44 20 3207 7858 Simon Mezzanotte +44 20 3207 7917 Matthew O'Keeffe +44 20 3207 7895 Josh Puddle +44 20 3207 7881 Alastair Reid +44 20 3207 7841 Internet www.berenberg.com CAPITAL GOODS Sebastian Kuenne Philippe Lorrain Rizk Maidi Horace Tam Simon Toennessen +44 20 3207 7856 +44 20 3207 7823 +44 203 207 7806 +44 20 3465 2726 +44 20 3207 7819 HEALTHCARE (cont.) Tom Jones Louise Pearson Laura Sutcliffe INSURANCE Iain Pearce Sami Taipalus +44 20 3207 7877 +44 20 3465 2747 +44 20 3465 2669 +44 20 3465 2665 +44 20 3207 7866 CHEMICALS Sebastian Bray John Klein Evgenia Molotova +44 20 3753 3011 +44 20 3207 7930 +44 20 3465 2664 LUXURY GOODS Zuzanna Pusz CONSTRUCTION Lush Mahendrarajah Robert Muir Michael Watts +44 20 3207 7896 +44 20 3207 7860 +44 20 3207 7928 MEDIA Robert Berg Laura Janssens Sarah Simon +44 20 3465 2680 +44 20 3465 2639 +44 20 3207 7830 METALS & MINING Alessandro Abate +44 20 3753 3029 FOOD MANUFACTURING AND H&PC Fintan Ryan +44 20 3465 2748 James Targett +44 20 3207 7873 GENERAL RETAIL Conrad Bartos Michelle Wilson +44 20 3753 3053 +44 20 3465 2663 HEALTHCARE Scott Bardo Jakob Berry Alistair Campbell Graham Doyle Klara Fernandes +44 20 3207 7869 +44 20 3465 2724 +44 20 3207 7876 +44 20 3465 2634 +44 20 3465 2718 MID CAP GENERAL Robert Chantry Gunnar Cohrs Sam England Ned Hammond Benjamin May Virginia Nordback Anna Patrice Simona Sarli Owen Shirley +44 20 3207 7812 +44 20 3207 7861 +44 20 3207 7894 +44 20 3465 2687 +44 20 3753 3017 +44 20 3465 2667 +44 20 3465 2693 +44 20 3207 7863 +44 20 3207 7834 +44 20 3465 2731 EQUITY SALES SPECIALIST SALES BANKS & DIVERSIFIED FINANCIALS Iro Papadopoulou +44 20 3207 7924 CONSUMER STAPLES Rupert Trotter +44 20 3207 7815 CONSUMER DISCRETIONARY Victoria Maigrot +44 20 3753 3010 HEALTHCARE Frazer Hall +44 20 3207 7875 INDUSTRIALS Chris Armstrong +44 20 3207 7809 INSURANCE Trevor Moss +44 20 3207 7893 MEDIA & TELECOMMUNICATIONS Julia Thannheiser +44 20 3465 2676 MATERIALS Jina Zachrisson +44 20 3207 7879 SALES BENELUX Miel Bakker Martin de Laet Alexander Wace GERMANY Michael Brauburger Nina Buechs André Grosskurth Joerg Wenzel +44 20 3207 7808 +44 20 3207 7804 +44 20 3465 2670 +49 69 91 30 90 741 +49 69 91 30 90 735 +49 69 91 30 90 734 +49 69 91 30 90 743 SALES (cont.) UK Frederik Angel John von BerenbergConsbruch Matthew Chawner Alexandra Clément Fabian De Smet Toby Flaux Karl Hancock Sean Heath David Hogg Peter Kaineder Christoph Kleinasser James Matthews David Mortlock Eleni Papoula Richard Payman George Smibert Anita Surana Paul Walker FRANCE Thibault Bourgeat Alexandre Chevassus Dalila Farigoule Clémence Peyraud Benjamin Voisin +44 20 3753 3055 +44 20 3207 7805 +44 20 3207 7847 +44 20 3753 3018 +44 20 3207 7810 +44 20 3465 2745 +44 20 3207 7803 +44 20 3465 2742 +44 20 3465 2628 +44 20 3753 3062 +44 20 3753 3063 +44 20 3207 7807 +44 20 3207 7850 +44 20 3465 2741 +44 20 3207 7825 +44 20 3207 7911 +44 20 3207 7855 +44 20 3465 2632 +33 1 5844 9505 +33 1 5844 9512 +33 1 5844 9510 +33 1 5844 9521 +33 1 5844 9507 SALES (cont.) SCANDINAVIA Marco Weiss SWITZERLAND, AUSTRIA & ITALY Andrea Ferrari +41 44 283 2020 Stephan Hofer +41 44 283 2029 Carsten Kinder +41 44 283 2024 Gianni Lavigna +41 44 283 2038 Jamie Nettleton +41 44 283 2026 Benjamin Stillfried +41 44 283 2033 SALES TRADING HAMBURG Alexander Heinz Gregor Labahn Marvin Schweden Tim Storm Philipp Wiechmann Christoffer Winter LONDON Mike Berry Stewart Cook Chris McKeand Simon Messman AJ Pulleyn Paul Somers US SALES BERENBERG CAPITAL MARKETS LLC Member FINRA & SIPC SALES Kelleigh Faldi Shawna Giust Zubin Hubner Jessica London Ryan McDonnell Emily Mouret Peter Nichols Kieran O'Sullivan Jonathan Saxon +1 617 292 8288 +1 646 445 7216 +1 646 445 5572 +1 646 445 7218 +1 646 445 7214 +1 415 802 2525 +1 646 445 7204 +1 617 292 8292 +1 646 445 7202 +49 40 350 60 719 SALES TRADING Scott Duxbury Tristan Hedley Christopher Kanian Lars Schwartau Bob Spillane +49 40 350 60 359 +49 40 350 60 571 +49 40 350 60 576 +49 40 350 60 415 +49 40 350 60 346 +49 40 350 60 559 E-mail: [email protected] REAL ESTATE Kai Klose Tina Munda +44 20 3207 7888 +44 20 3465 2716 TECHNOLOGY Adnaan Ahmad Jean Beaubois Georgios Kertsos Daud Khan Gal Munda Tammy Qiu +44 20 3207 7851 +44 20 3207 7835 +44 20 3465 2715 +44 20 3465 2638 +44 20 3465 2746 +44 20 3465 2673 TELECOMMUNICATIONS Wassil El Hebil +44 20 3207 7862 Usman Ghazi +44 20 3207 7824 Siyi He +44 20 3465 2697 Laura Janssens +44 20 3465 2639 Paul Marsch +44 20 3207 7857 THEMATIC RESEARCH Asad Farid +44 20 3207 7932 UTILITIES Robin Abrams Andrew Fisher Mehul Mahatma Lawson Steele +44 20 3465 2635 +44 20 3207 7937 +44 20 3465 2698 +44 20 3207 7887 ECONOMICS Kallum Pickering Holger Schmieding +44 20 3465 2672 +44 20 3207 7889 E-mail: [email protected] ELECTRONIC TRADING Daniel Eichhorn +49 40 350 60 391 Matthias Führer +49 40 350 60 597 CRM Jessica Jarmyn Edwina Lucas Greg Swallow +44 20 3465 2696 +44 20 3207 7908 +44 20 3207 7833 CORPORATE ACCESS Lindsay Arnold Jennie Jiricny Stella Siggins +44 20 3207 7821 +44 20 3207 7886 +44 20 3465 2630 EVENTS Laura Elliott-Jones Charlotte Kilby Natalie Meech Ellen Parker Sarah Weyman Lisa Winterton +44 20 3753 3008 +44 20 3207 7832 +44 20 3207 7831 +44 20 3465 2684 +44 20 3207 7801 +44 20 3753 3057 +44 20 3465 2755 +44 20 3465 2752 +44 20 3207 7938 +44 20 3465 2754 +44 20 3207 2756 +44 20 3465 2753 E-mail: [email protected] CRM +1 646 445 5573 Laura Cooper +1 646 445 7201 +1 646 445 5566 +1 646 445 5576 CORPORATE ACCESS +1 646 445 5571 Olivia Lee +1 646 445 7212 +1 646 445 5574 ECONOMICS Mickey Levy +1 646 445 4842 6