HONG KONG - With the start of a new year, influential Hong Kong-based economists have released their own versions of Wall Street veteran Byron Wien's "surprise predictions" for the year. They focused on the Chinese economy and market outlook for 2015 and their predictions, like Wien's, include some convincing elements.
Wang Tao of UBS said key themes for 2015 will be a further slowdown of China's economic growth to 6.8 per cent and more monetary easing, including interest rate cuts, by the People's Bank of China, the central bank, due to slowing inflation. She listed six surprises for the year: 1) the end of the property market downturn; 2) the risk that large capital outflows will trigger an outbreak of credit defaults by shadow banking players, dealing a blow to corporate finances; 3) faster-than-expected progress in local government debt restructuring; 4) the possibility the central bank will cut the reserve requirement ratio (RRR) three times or more if it faces unexpected large capital outflows, or that it will end monetary easing if property prices bottom out; 5) a weakening of the yuan by 5 per cent or more against the dollar; and 6) rapid progress in the reform of state-owned companies.
Hong Hao of Bocom International listed the following five surprises: 1) a recovery of property prices; 2) less aggressive monetary easing by the central bank; 3) a bottoming out of commodity prices; 4) market confusion caused by premature interest rate hikes by the US; and 5) a slowdown in Chinese stocks' rise. He said that the Shanghai Composite Index -- which is continuing to hover at a five-and-a-half year high of around 3,300 despite the global stock market downtrend -- might struggle to rise further if it passes the 3,400 mark.
The property factor
Interestingly, both economists included a prediction that the property prices could bottom out and aggressive monetary easing might come to an end.
The sluggish real estate market triggered uncertainty about the Chinese economy because local governments rely on property sales for much of their revenue. Despite the central government's efforts to stimulate the market, property prices have been stuck in a downtrend. According to the China Index Academy, the prices of new houses put on the market last December in 100 major cities fell 2.7 per cent on the year -- a bigger drop than the 1.6 per cent decline in November -- and have yet to bottom out.
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