Scott Barlow
A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the World Wide Web.
Nothing in finance is inevitable, but a series of in-depth reports signal that the odds of a severe credit crisis in China are rising by the day. First from Quartz, using data from the Bank of International Settlements:
"China's leaders face a challenge: they must allow economic growth to slow steadily enough that they don't trigger a financial shock. Yet the best bet for achieving this feat – i.e. bank lending – also happens to be their biggest threat. At 125 per cent of GDP, China's corporate debt is already perilously huge.
Here's another sign of just how unmanageable that debt has become: China's debt service ratio (the share of GDP used to pay down debt) is literally in the red zone."
"China's debt situation is genuinely scary – and getting worse" – Quartz
Forbes magazine adds that fiscal stimulus in China is failing to spur growth because of overcapacity:
"Perhaps the most indicative statistic to come out of Beijing in recent days is that, despite all the monetary loosening since the end of last year, there were only 707.9-billion yuan of new loans in April, down from 1.18-trillion yuan in March. The reason for the fall in new loans is clear. There is a fundamental lack of demand in China."
The article concludes ominously:
"If [Premier Li Keqiang's stimulous efforts ] succeed, he will at best bought himself a year of debt-fueled growth. If he fails, almost any dark scenario could occur, perhaps by the fourth quarter of this year."
"Did China Just Launch World's Biggest Spending Plan?" – Forbes
The Economist turned its attention to Bombardier Inc. which, despite a mindboggling degree of public support, continues to struggle to find a market niche:
"There are worries that the CSeries will never be a commercial success – and that Bombardier might even run out of cash before the plane turns a profit… The company insists it has the finances to see the project through. However, if things began to look that serious, Alain Bellemare, the new boss Bombardier hired in February, might conceivably put the commercial-aircraft division, which makes regional jets as well as the CSeries, up for sale. Canada's government would not relish seeing a national champion fall into foreign hands, such as those of COMAC, China's state planemaker. Canadian taxpayers might just be called upon to dip in their pockets and keep the CSeries in the air."
"Turbulence: The Canadian firm is struggling to make its bet on a big new plane pay off" – The Economist
I noted previously that a huge segment of global asset markets was closely following global economic growth estimates for 2015. In this event, a Wall Street Journal story detailing the increasingly pessimistic outlook for world GDP, should be taken seriously by all investors, particularly those in commodities and fixed income:
"[The OECD] said the combined gross domestic products of its 34 members – most of which are developed countries – was just 0.3 per cent higher in the first three months of 2015 than it was in the final three of 2014."
"Developed-Country Growth Slows, OECD Says" – Wall Street Journal
See also: "Cheap oil fails to spark consumer spending boom" – Financial Times (subscription may be required)
Tweet of the day (great chart): @auaurelija blame the US #USD pic.twitter.com/2bHFXmnrN0
Diversion: A Harvard MBA, summarized "What's one thing you've learned at Harvard Business School that blew your mind?" – Medium
Scott Barlow