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20-10-2015, 06:48 AM
Growth rate 'good enough for China', says Aviva investment head
DateOctober 20, 2015 - 8:44AM
[Image: 1444795415899.jpg]
Mark Mulligan
Senior markets and economy writer
China's transition away from large-scale manufacturing and heavy industry towards a more services and consumption-based growth model appears to be on track, according to the head of investment strategy at Britain's biggest insurer.
Aviva Investors' Ian Pizer says despite the sharp slowdown in headline growth rates, the world's second-biggest economy was managing its structural rebalancing without huge social cost.
"I think what's underplayed is the degree to which there really is a transition under way in China," he said.
"What's clear is that industrial China has slowed quicker than we and most of the investment community would have expected.
"However, when you look at the rebalancing within the economy – and I think one of the key metrics here is the jobs number – basically job creation seems to be holding up relatively well.
"We know the services sector is still growing fairly healthily, and we know that's more labour-intensive," he said.
"So it appears to be that at the moment they are managing that transition within the economy to keep their social contract."
September industrial production eased sharply
His comments – during a visit to Australia to see clients following the launch in July of an Australian feeder fund to Aviva's "multi-strategy target return fund" – also came ahead of Monday's release by the Chinese government of third-quarter gross domestic product growth rates.
Despite warnings that the number could come in well below average estimates around 6.8 per cent, the economy grew at 6.9 per cent year-on-year, according to official figures, after advancing 1.8 per cent in the three months to the end of September.
Industrial production eased sharply in September, but retail sales growth for the month was slightly better than expectations.
Like many Western commentators, Mr Pizer was sceptical of the official GDP figures.
However, he downplayed the importance of this.
"We don't know what the headline level of growth is. The transparency of the numbers doesn't really give us the ability to be exact on that – but it appears to be growing at a level at which they can create the level of employment needed," he said.
He conceded, however, that countries and companies that had imagined China's manufacturing-heavy double-digit growth rates could be maintained indefinitely would have been caught off guard by the slowdown.
Demand hasn't slumped as much
"China is growing at a rate that's good enough for China, but it's not okay for those parts of the world that perhaps leveraged into the idea that China wasn't going to slow more rapidly," he said.
He agreed that capacity build-up ahead of the global financial crisis – and, in countries such as Australia, well after it – had helped drive down commodity prices. Demand, however, hadn't slumped as much as many people believed, he said.
"On commodities, it's not that demand has really dropped, it's that demand has dropped relative to rates that people have got used to, and to which firms were building capacity to actually match and deliver," he said.
"The V-shaped recoveries and the big accelerations that we were getting used to just aren't around at the moment," he said.
As a result, he favoured companies and economies with "sustainable business models".
"You're looking for firms that aren't relying on some massive acceleration, and that's where the opportunities are," Mr Pizer said.
He said the US Federal Reserve's concern for China, and recent sharemarket volatility in the country, had been misplaced when the central bank's Open Market Committee met in September.
Expect conservatism from banks
"What you expect from central banks, is that you expect them to be very conservative in their language, very conservative in what they say," he said.
"So, the reality is that what a chairman of the central bank, particularly the Fed, isn't expected to do is to say, 'we're not moving, because we're worried about what's going on in the rest of the world'."
He said the US economy was already strong enough to benefit from an interest rate increase, and that any tightening cycle would be a slow process in any case.
The global sharemarket sell-off unleashed by China's wobbles and the Fed's vacillation had thrown up buying opportunities just when everything looked expensive, Mr Pizer said.
"Quantitative easing is designed to bring forward asset price returns, so I think you should expect to see things that are on the side of fully valued," he said.
"You want to avoid areas that you think are outright expensive, but if it's on the expensive side of fair, I think that's something that's okay within this sort of environment, because policy is going to be incredibly easy."
DateOctober 20, 2015 - 8:44AM
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[Image: 1444795415899.jpg]
Mark Mulligan
Senior markets and economy writer
[Image: 1445291085788.jpg]
Countries and companies that had imagined China's manufacturing-heavy double-digit growth rates could be maintained indefinitely would have been caught off guard by the slowdown. Photo: Bloomberg
China's transition away from large-scale manufacturing and heavy industry towards a more services and consumption-based growth model appears to be on track, according to the head of investment strategy at Britain's biggest insurer.
Aviva Investors' Ian Pizer says despite the sharp slowdown in headline growth rates, the world's second-biggest economy was managing its structural rebalancing without huge social cost.
"I think what's underplayed is the degree to which there really is a transition under way in China," he said.
"What's clear is that industrial China has slowed quicker than we and most of the investment community would have expected.
"However, when you look at the rebalancing within the economy – and I think one of the key metrics here is the jobs number – basically job creation seems to be holding up relatively well.
"We know the services sector is still growing fairly healthily, and we know that's more labour-intensive," he said.
"So it appears to be that at the moment they are managing that transition within the economy to keep their social contract."
September industrial production eased sharply
His comments – during a visit to Australia to see clients following the launch in July of an Australian feeder fund to Aviva's "multi-strategy target return fund" – also came ahead of Monday's release by the Chinese government of third-quarter gross domestic product growth rates.
Despite warnings that the number could come in well below average estimates around 6.8 per cent, the economy grew at 6.9 per cent year-on-year, according to official figures, after advancing 1.8 per cent in the three months to the end of September.
Industrial production eased sharply in September, but retail sales growth for the month was slightly better than expectations.
Like many Western commentators, Mr Pizer was sceptical of the official GDP figures.
However, he downplayed the importance of this.
"We don't know what the headline level of growth is. The transparency of the numbers doesn't really give us the ability to be exact on that – but it appears to be growing at a level at which they can create the level of employment needed," he said.
He conceded, however, that countries and companies that had imagined China's manufacturing-heavy double-digit growth rates could be maintained indefinitely would have been caught off guard by the slowdown.
Demand hasn't slumped as much
"China is growing at a rate that's good enough for China, but it's not okay for those parts of the world that perhaps leveraged into the idea that China wasn't going to slow more rapidly," he said.
He agreed that capacity build-up ahead of the global financial crisis – and, in countries such as Australia, well after it – had helped drive down commodity prices. Demand, however, hadn't slumped as much as many people believed, he said.
"On commodities, it's not that demand has really dropped, it's that demand has dropped relative to rates that people have got used to, and to which firms were building capacity to actually match and deliver," he said.
"The V-shaped recoveries and the big accelerations that we were getting used to just aren't around at the moment," he said.
As a result, he favoured companies and economies with "sustainable business models".
"You're looking for firms that aren't relying on some massive acceleration, and that's where the opportunities are," Mr Pizer said.
He said the US Federal Reserve's concern for China, and recent sharemarket volatility in the country, had been misplaced when the central bank's Open Market Committee met in September.
Expect conservatism from banks
"What you expect from central banks, is that you expect them to be very conservative in their language, very conservative in what they say," he said.
"So, the reality is that what a chairman of the central bank, particularly the Fed, isn't expected to do is to say, 'we're not moving, because we're worried about what's going on in the rest of the world'."
He said the US economy was already strong enough to benefit from an interest rate increase, and that any tightening cycle would be a slow process in any case.
The global sharemarket sell-off unleashed by China's wobbles and the Fed's vacillation had thrown up buying opportunities just when everything looked expensive, Mr Pizer said.
"Quantitative easing is designed to bring forward asset price returns, so I think you should expect to see things that are on the side of fully valued," he said.
"You want to avoid areas that you think are outright expensive, but if it's on the expensive side of fair, I think that's something that's okay within this sort of environment, because policy is going to be incredibly easy."