Deutsche Bank presented its 2009 China economic outlook and equity market strategy at the Bank’s 7th annual Access China Conference in Beijing. The event is being attended by over 800 investors, representing many of the world’s largest asset management houses, hedge funds, pension funds, and banks.
In his keynote presentation at the conference, Jun Ma, Deutsche Bank’s Chief Economist for Greater China, said he had a cautious view in relation to the economy for the next one and a half years.
“We forecast that China’s GDP growth will decelerate further from 9% in 2008 to 7% in 2009 on significantly weaker external demand and rapid deceleration in investments in the real estate, manufacturing and mining sectors,” says Jun Ma. “Our analysis suggests that China’s GDP will have a ‘double dip’, finally reaching its low point in the first half of 2010.”
Ma says he also expects 2009 to witness the worst deflation in 10 years. “Our research team forecasts that CPI inflation will likely fall below -1% in February and PPI inflation could decline to -7% in Q3 this year,” says Ma.
“Our top-down analysis suggests that EPS for the H share index will likely decline by 10 to 15% in 2009,” says Ma regarding China’s corporate earnings growth. “Our view is that the H share index will likely be range-bound in the next two quarters; however a substantial rally could occur in the second half of 2009. Similarly, our fundamental analysis suggests that A-shares may also continue to experience headwinds in the first half of 2009, with the second half being more positive.”
Given this outlook, Ma outlined that the Bank’s recommended equity market strategy in China is to stay defensively positioned in the first half of 2009 and to switch to a more aggressive asset allocation when signs of an end to analyst downgrades emerge, likely to be by the middle of 2009.
Ma added that the key risks to his view included G3 economic performance, and the timing of the recovery of the Chinese property market.
D.C.