Correction in China calls for diversification

La correction en Chine appelle la diversification. Voici le titre de la note de la Banque Suisse Pictet que nous vous livrons.

Nous ne nous intéressons pas à son contenu. Nous ne ferons pas remarquer qu’elle dit exactement le contraire de la note du même jour publiée par Goldman Sachs, car comme vous le savez il faut de tout pour faire un marché et surtout il faut des gens qui ont des opinions contraires.

Goldman lui, dit que tout cela n’est pas grave et qu’il ne faut pas craindre de contagion, le poids des Emergents et de la Chine n’est pas suffisant. Goldman dit que nous sommes en 98 -année de la crise dite Asiatique- et qu’après une chute initiale les marchés, surtout US, vont repartir de l’avant à la conquête nouveaux sommets. La démonstration de Goldman ne tient pas debout, mais peu importe, c’est Goldman!

Non ce que nous voulons souligner c’est le fait que la stratégie de Pictet est de rester dans les marchés. La réponse au risque est à l’intérieur des marchés, elle est dans la diversification. C’est ce que nous expliquons, le système a besoin que l’argent reste, soit prisonnier des marchés, peu importe ou et dans quels véhicules, la seule chose qui compte, c’est qu’il n’en sorte pas et ne parte pas à la recherche de sa valeur réelle.

Vous savez ce que nous en pensons : la diversification ne protège pas et ne protégera pas quand les choses deviendront sérieuses. Pourquoi? Parce la diversification est illusoire, tout dépend du même sous-jacent, tout a le même substrat, la liquidité, l’argent . De la même façon que tous les actifs en 2008 étaient de près ou de loin corrélés au housing américain et ont tous plongé , cette fois tout est corrélé aux liquidités fournies et sur-fournies, surabondantes de la Fed; il n’y a qu’un sous-jacent: on échange les assets financiers contre de la monnaie et c’est l’abondance de la monnaie qui fait que tous les assets font bulle.

« A renewed sell-off on Chinese stock markets has spread across Asia and is now hitting markets globally. This has created a climate of elevated risk in which diversification of investments across asset classes remains key.

There is a risk of a financial and economic crash in China, creating considerable contagion to the rest of the world. However, we think that the Chinese authorities are likely to succeed in stabilising the economy.

China’s slowdown creates concerns

Underlying the current market turmoil are concerns about China’s economic slowdown. The country has been an important driver of growth in the global economy since the beginning of the 1990s. However, after two-and-a-half decades of astonishing real GDP growth—between 9% and 12% annually—China has entered a period of adjustment. As its economy becomes more mature, growth should stabilise at around 5% within 4-5 years.

The considerable challenge for the Chinese authorities is to manage this transition without a recession or a financial shock. As the current turmoil shows, this is proving very difficult. In a pessimistic scenario, if problems on China’s financial markets and real economy deepen, and the authorities fail to contain the situation, a full-blown financial and economic crash in China could ensue. This is currently the biggest risk for the global economy and financial markets.

However, the Chinese authorities retain considerable firepower to stabilise the economy. They could further loosen monetary policy, and also deploy fiscal stimulus. China’s real economic growth this year therefore seems likely to meet our forecast of around 6.5%.

With the growing internationalisation and liberalisation of China’s financial markets, the Chinese authorities do appear to have lost the ability to control the stock market. However, the current sell-off remains a sharp correction, not a crash: the Shanghai Composite surged by 125% from its low in October 2014 to its peak in mid-June, driven by liquidity, and the recent corrections have merely removed this excess.

The impact of China’s difficulties is spreading
Emerging markets are already suffering from the slowdown in China, as well as from lower commodity prices and the prospect of higher US interest rates. Brazil, the key economy in Latin America, faces recession. Emerging Asia, which had been the most resilient part of the emerging world until recently, is now being dragged down as well.

For developed economies, the direct impact would be limited even if China’s growth were to slump. For the US, China accounts for 10% of exports, comprising 1% of GDP, and for the euro area, China takes 7% of exports, equivalent to 1% of GDP. Emerging markets account for 10% of EBIT for US companies and 15% for European companies.

However, the indirect impact, through contagion to financial markets, would be significant. An economic crash in China would exacerbate global deflationary pressures and create a bear trend on global financial markets. Vulnerability is greater in Europe than the US. The US economic recovery is more resilient, and the US economy is also likely to benefit more from the support to consumption offered by lower oil prices.

In a climate of elevated risk, diversification of investments across asset classes remains key. »

By Perspectives Pictet Published: Monday August 24 2015

EN PRIME Extrait significatif de l’opinion de Goldman

« S&P 500 has corrected for the first time in three years, declining by 11% from its May record high. Concern about China economic growth was the immediate catalyst for the correction. We expect the US economy will avoid contagion and continue to expand. S&P 500 will rise by 11% to reach 2100 at year-end. Such a rebound would echo the trading pattern exhibited in 1998 when US equities rallied and largely ignored the Asian financial crisis.

A similar correction occurred in 1998 before the market rebounded. S&P 500 plunged by 14% during August 1998 before rallying by 29% during the last four months of the year.

Ultimately, the US economy was relatively unaffected by overseas financial market gyrations in 1998 and we believe a similar situation will occur in 2015. Our analysis of the geographic revenue exposure of S&P 500 constituents reveals that the US accounts for 67% of aggregate sales. Approximately 8% of revenues stemmed from the Asia-Pacific region with 1% disclosed as coming specifically from Japan and 2% from China. From an economics perspective, US exports account for roughly 13% of total US GDP, which includes 5% to emerging markets and less than 1% to China. »