Davos, Trump, China and French growth – My Monday column

The world balance is changing under the influence of China as it seeks to establish a different path for globalization. America is trying to stage a response at Davos with the White House realizing that America needs its partners in order to be great again. Meanwhile, French growth is running into physical obstacles: the 2% trend is a peak, at least in the short term. 

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We saw a surprising development in Davos last week when the US President backtracked on world trade and his global economy model, as the White House indicated that it no longer sees the economy as a zero-sum game, contrary to its stance so far. Continue reading

Higher bonds rates in China – Should we care?

Written with Zouhoure Bousbih

This week, the Chinese bond market has again been under selling pressure. The yield on 10-year Chinese government bonds once again flirted with the 4%, the highest in 3 years.
The Pboc (the Chinese Central Bank) intervened twice this week by injecting liquidity into the market, for a total amount of 810 billion yuan or USD 122bn , the largest injection since mid-January.
China-10YearRate
Should we worry?
No. The movement began just after the end of the C.C.P congress (end of October) when the Chinese authorities signaled clearly that they would continue their fight against high leveraged finance, ie shadow banking.
This has resulted in massive sales from Chinese government bondholders notably from  mutual funds that are the second largest holders of Chinese state bonds. They feared a tightening of financial conditions.
China’s interest rates have been low so far because of the loose Pboc’s monetary policy. The orientation has not changed but the action of the Chinese monetary policy is now more focused.
The Pboc intervened in the market by injecting liquidity in order to reduce volatility and it will continue to intervene if necessary to correct the excesses of the financial markets.
The Chinese central bank must find an equilibrium between its deleveraging campaign and the stabilization of Chinese financial markets so as not to penalize economic activity.

Does this question the attractiveness of the Chinese bond market for international investors? and the willingness of the Chinese authorities to open their bond market?
At 4%, Chinese government bonds remain attractive compared to their counterparts in developed countries,  helped by a stabilized yuan. China’s deleveraging campaign is rather a positive signal sent to international investors. China will not come back on the opening of its bond market to international investors because of the internationalization of the yuan. China’s economic activity remains sound. This is only a moment of turbulence to pass …

The Chinese bond market opens

Co-authored with Zouhoure Bousbih

The Chinese bond market is becoming more international and opening up to foreign investors. Coinciding with the 20th anniversary of the handover of Hong Kong to China, the Chinese authorities are displaying their aim of shaping world affairs, acting directly on the largest and most important financial market worldwide.
The Chinese bond market is the third largest worldwide after the US and Japan, with assets of $9,000 billion (source FT) if we combine sovereign bonds, agencies and corporates.
Foreign investors only account for 1.5% of this market, which is ridiculously small for an economy the size of China’s. The magnitude of the Chinese economy in the world and the proportionate weighting of its bond market are not yet comparable. But this is set to change, and this shift in balance will mark a lasting transformation compared to the current situation.   Continue reading

The global outlook in 8 graphs

In April, there are still a lot of questions related to the strength of the global economic activity for the coming months.
Companies’ surveys in April from ISM and Markit do not show an improvement in the manufacturing sector. Nevertheless the momentum is stronger in the non manufacturing sector. The first point is worrisome as a slow dynamics in the manufacturing sector will lead to a poor performance in world trade. We cannot expect an impulse from this sector and therefore no spillover can be anticipated to the non manufacturing sector. The main source of improvement in the economic momentum always comes from a change in the manufacturing sector profile. This is not the case yet. Continue reading