John Redwood, global investment strategist at Charles Stanley, is bullish on Asia. While “Western economies have been making progress over the past two to three years”, Asian markets have also “started to come back to the party after several years of poor performance”. This recovery is mainly due to China’s ongoing strength. While its annual growth rate of 6% is below the previous trend of around 10%, it is still “impressive”, given the size of China’s economy.
This growth demonstrates that “investors have been wrong about China year after year”. While many hedge funds are correct that China has a high level of overall debt, “it’s hard to find a country that doesn’t”, notes Redwood. What’s more, the Chinese government is only a “modest” borrower, “especially when compared to Western governments”. While state-owned corporations have borrowed large sums, they have done so from banks controlled and influenced by the Chinese government. This means that the government “owns both sides of the transactions” and so is able to avoid a dramatic credit crunch of the sort that caused the 2008 crisis.
India is also playing an important role in boosting growth in Asia, adds Redwood. Thanks to prime minister Narendra Modi’s reforms, “India is making progress”. Indeed, it has now overtaken China’s growth rate (although the smaller size of India’s economy means that it contributes less to regional growth in absolute terms). Asian markets have also been helped by the weaker dollar, and valuations “are not expensive” compared with developed markets. In all, both Asian economies and markets “look well set” for continued growth.