It is an accepted fact that that are developing usually go through an ‘S’ curve. Growth increases and then gets slower at around £4000 GDP per head. This phase has now been reached by, but what makes this an extraordinarily thrilling time is that never before has a nation as large as China gone through the ‘S’ curve.
This must for sure make it unique. The magnitude and speed of what is happening taken together with having a command economy where things get finished make it so.
Anthony Bolton of Fidelity in the UK suggests that Japan will be overtaken by China by as soon as the end of the next year to develop into the second largest economy in the world. China is maybe a better prospect than India (India suffers from a lot of bureaucratic rules and regulations) owing to its ongoing strong secular growth and a strong centalistic government which gets things done.
‘China is the third biggest economy in the world at present but only the 10th in terms of stock market size.’
Bolton’s favourable view of the Chinese economy is because of his faith that the markets of the West will meet great challenges as they come out of the effects of recession and the credit crunch.
He believes that the UK and the West is in a point of fast economic recovery but that will slow down next year. The West has borrowed from the future to solve today’s problem.
It’s not that the western economies are in a very bad business environment but it is awfully likely that they will have below trend growth and face headwinds. China can continue to expand at a relatively high rate.’
Bolton has stated that China was in the initial year of a multi-year bull run and that it would be ‘very unusual ‘ if it was to finish after just one year.
It is quite probable that most of the markets of the world will go through a re-trenchment stage next year. We are in an environment where interest rates will remain somewhat at a low level and governments will not wish to leave their support mechanisms too rapidly . If they do it too quickly, they may perhaps return to recession.
However there may well be more upside to come for Western equities in the short term. This sort of situation engenders liquidity so there is more upside to come.’
Bolton said the current debt issues in Dubai might be an concern for a number of western economies, but would not have a significant impact for China owing to its relative strength.
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