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You're listening to Strictly Business
Podcast with Lindsay Williams.

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We have moved into the final quarter of
2024 with many stock market indices

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worldwide at or near all-time

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highs and suddenly chipping in as well as
the interest rates coming down and

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inflation abating,

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suddenly we've got China coming to the
party as well.

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It's recently been the 75th anniversary of
the formation of the People's Republic of

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China.

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And they have almost symbolically marked
it with a stimulus package, which has set

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China equities and other asset classes on
fire.

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With me now is Philip Saunders from 91 in
London, speaking to us from Mexico City.

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Just briefly tell us what exactly the
Chinese authorities have done, Philip.

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So, you know,

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what we've seen is increasing concerns
about the growth rate in China.

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being sluggish.

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We've seen Chinese government bond yields
sort of collapse to yields of about 2%.

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China's undergoing a very, you know,
challenging sort of baton change from the

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old economy,

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which was very property dominated,

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to a newer economy that basically is not
reliant on property and the build out of

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infrastructure to

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drive growth.

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And it's a tricky transition.

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And Up until now, they have not, they've
tried to avoid resorting to significant

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stimulus.

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They've obviously cut interest rates,
which is appropriate in a

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semi-disinflationary sort of kind of
environment.

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And the stock market basically had the odd
sort of rebound,

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but sunk to extremely low levels earlier
on.

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And finally, you're seeing a sort of much
more significant response, which basically

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consists not just of cutting rates.

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There's no point in just pushing on a
string if people don't want to borrow

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because property prices are sort of being
sustained at

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sort of, you know, at overvalued levels,

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which has clearly affected consumer
confidence because 96% of Chinese property

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owners, you know,

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it's significant.

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And, you know, their property is their
savings as well.

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And so therefore...

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that has a very significant bearing on
consumer sentiment and consumer spending,

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which has been misfiring during the sort
of current recovery.

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OK, it all sounds very good.

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And it's been the most astonishing rally
that we've seen in China equities.

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And as I said earlier on, other asset
classes as well.

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Is it sustainable?

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Is this the solution?

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Can they build on this in a meaningful
way?

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Can the economy start to rebuild itself?

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Can the property market be free of the
shackles of not just empty...

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buildings but empty towns yeah well i
think that i mean what you've got to do is

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step back and say right you know what has
the sort of build out of

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property achieved in china uh well it's uh
accommodated a most extraordinary move

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from

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uh from uh the provinces if you like uh

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uh to the the cities um and you know this
has happened without sort of sprawling

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favelas

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which uh which has been the experience in
many other emerging uh economies um

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And so in a way, basically, it served its
purpose, but inevitably,

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things got carried away and there was
overcapacity and so forth.

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And that's exactly what's been overhanging
markets.

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And China now needs, obviously, a new
growth driver.

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So if you look at other parts of China,
you know, there's the new economy in

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China, i.e.

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electric vehicles, you know, the
manufacturing, the dominant.

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players in solar power, solar panels, you
know,

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basically wind turbines, etc.

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So you're seeing sort of huge growth in
these pretty sophisticated sectors that's

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happening under the surface.

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But the narrative has been very much
focused on, you know, what's been going

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wrong,

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and the structural challenges that they
face in terms of actually avoiding a more

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deflationary kind of environment.

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In fact, the Chinese economy has been
growing.

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You wouldn't think it if you actually
listened to some of the narrative,

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particularly in the West.

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And one of the reasons for such a sharp
rebound was really positioning in

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markets.

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You know, basically the world and his dog
was short Chinese assets where they could

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be short Chinese assets.

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And so when you're going to move this
violent...

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it typically speaks to more about investor
positioning in markets than necessarily

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fundamentals.

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However, that being said, you know, quite
often inflection points are violent.

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And so probably the low is in.

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You know, we now have talk about the
Beijing put.

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You remember the Fed put?

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Yes.

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Well, now we have the Beijing put.

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And enough was enough.

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And they're sort of clearly in the process
of drawing a line.

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So you can now borrow 2% and invest in
high yielding Chinese equities,

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which seems to be potentially a pretty
good thing to do.

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So they want to actually draw a line under
the equity markets.

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And they also want to recognize that
growth is unbalanced and they need to do

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something about consumer sentiment.

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So this is why it's not just a monetary
package or a series of monetary measures.

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It basically, as we see it well out, it's
about basically fixing local authority

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financing.

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which is another one of the sort of big
problem areas, and also doing things to

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address the issue of consumer sentiment.

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Will it succeed, ultimately?

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I think it's, you know, we've seen this
before, actually,

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if you look at the experience of Chinese
equity markets, going back to the global

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financial crisis,

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we've seen a series of times when there
were concerns about economic growth, and

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they've come in and they've...

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stimulated aggressively and you've seen
significant moves in the market, you know,

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100,

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150% moves, but they haven't been
sustained.

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And so this might well turn out to be one
of those.

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I rather suspect there's possibly a little
bit more to it this time, but time will

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tell.

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What I was going to ask you, Philip, is
obviously very, very good for China and

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Chinese asset classes in the short term.

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Hopefully it will extend to the medium and
the long term.

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Is it good for the world?

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Is it good, for example, for a country
that produces commodities?

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Because commodity prices, which will
already hopefully be boosted by lower

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interest rates in the developed

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world and therefore the lower dollar, etc.

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But will the China story, if it develops,
which you suggest that it might, there

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might be more substance this time,

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will it help the global economy as well?

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Yes, I mean, I think the answer to that,
Lindsay, is it will a bit to some extent.

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But.

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But, you know,

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you're going to have a much less commodity
intensive complexion to growth in China.

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So it might be good for food producers
because China is obviously a massive food

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importer.

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But if it's not about putting up lots of
new apartments,

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which I doubt it is because I don't think
they want that, then, you know,

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demand for some of the more traditional
commodities is not suddenly going to take

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off again.

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So you could see, you know, obviously
demand for something like copper, which,

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you know, where there's a global shortage,
you know,

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having the Chinese come back into that
market, you know, is clearly going to have

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an effect on the price.

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You know, is it really going to radically
transform the fortunes of iron ore?

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You know, maybe not so much.

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Okay.

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Final question.

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I don't know if you've had a chance to sit
down with your team at 91 in London and

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say, okay, this is.

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a bit of a game changer or potentially a
game changer shall we re-look at our china

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strategy have you done that yet

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yes i mean we're continually reviewing
strategy and we you know we tend to

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basically have a focus on medium-term

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strategy and also short-term cyclical
environment and we have been building

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exposure to chinese equities which has
been a

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pretty sort of unpopular thing to do uh

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simply because you you know that there's
never been a better time to build

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a portfolio of high quality Chinese
equities, where, you know,

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the earnings are progressively sort of
growing at a pretty healthy clip, and

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where, you know,

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the price earnings multiples are
ridiculously low.

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And, you know, that's not necessarily
going to actually result in instant

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gratification,

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if you've just got an investment time
horizon of a few months.

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But if you're looking at a sort of three
to five year period, you know, even after

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the rebound, we've seen

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then I think, you know, basically you can
still build a portfolio of, you know,

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really attractive exposures within the
China market.

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Now, you can then go back to say, well,
but China isn't investable and, you know,

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they're communists, etc.

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And you can never make money and so forth.

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I think that that's wildly exaggerated and
was obviously more than fully in the

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price.

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Yes, that theory was debunked quite a
while ago.

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But Philip, thank you very much for your
analysis.

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Quite exciting times, actually.

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Philip Saunders is from 91 in London.

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Speaking to us from Mexico City.

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The views and opinions expressed in these
podcasts are those of Lindsay Williams and

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various contributors and do not reflect
the policy,

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position or opinion of any other agency,
organisation,

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employer or company associated with
StrictlyBusinessPodcast.com.

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Assumptions made on the analyses are not
reflective of the position of any other

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entity other than the speaker or the
author.

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And since we are critically thinking human
beings, these views are always subject to

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change, revision and revision.

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and rethinking at any time.

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Please do not hold us to them in
perpetuity.