China’s economic growth is expected to slow to 6.8 percent in 2015 as the country reduces fixed investment to combat industry overcapacity, a top economist at the Societe Generale Corporate & Investment Banking said.
“Interestingly, China is the only important economy where we did not revise up our growth forecast in reaction to [a drop in the] global oil price. That’s really because we sense there is a loss of momentum in the Chinese economy,” said Klaus Baader, SG’s chief economist for Asia Pacific.
“It’s coming from a declining contribution from fixed investment … Overcapacity exists in the manufacturing sector, of course, if there is excessive investment,” he said.
The bank predicts gross domestic product will expand 7.3 percent this year.
Outlook for the housing market is still cloudy despite moves to ease restrictions on home purchases, especially in lower-tier cities. Credit growth is also expected to be on a downtrend, he said.
The Shanghai Composite Index has surpassed 3,000 for the first time in three years on Monday, as the index climbed 2.8 percent to 3,020.26 at the close, the highest since April 2011.
Baader said the bank has a bullish view on the Chinese equity market, despite the widespread view that the A-share market is unlikely to be included in the MSCI index soon because of restrictions in capital movements.
“It will certainly be part of our global asset allocation to continue with a reweighting towards we call a China complex, meaning buy China stocks, whether it is A shares or H shares.”
“The Chinese equity market is after the US the second largest market in the world. It is of course hugely important from that perspective,” he said.
China’s stock market is very large in market capitalization, on many valuation metrics looks very cheap, and is dramatically under-held by the international investor community, he said.
On the Shanghai-Hong Kong Stock Connect, which kicked off last month, Baader said its benefits to institutional investors are quite limited due to certain conflicts with the Qualified Foreign Institutional Investor (QFII) and Renminbi Qualified Foreign Institutional Investor (RQFII) schemes.
Some of the trading procedures are quite different from what the big institutions are used to and so it is not easy for them to adjust, Baader said.
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