Flash: The biggest risk factor is China's financial bubble - RBS


FXstreet.com (Barcelona) - The big risk factor for global markets is risk of air being let out of a financial bubble in China, reiterates Greg Gibbs, FX Strategist at RBS, after sharing his view on the Chinese cash crunch yesterday too.

Expanding on yesterday's take, Gibbs notes that the real risk is that "banks are being squeezed because investors in off balance sheet products are not rushing to roll over their investments or throw more of their savings into new ones that may be required to keep the same old borrowers afloat on their existing assets."

Gibbs also notices a further squeeze by a reversal of capital inflow from foreigners closing carry trades in CNY.

Gibbs emphasizes the need to continue keeping an eye on China very closely, noting that "We must not be easily calmed if and when the PBoC inject liquidity, we must watch where term lending rates settle; if the yield curve steepens rapidly from one week out it will be a sign of banking sector distress."

The end result on this ongoing cash crunch in China, according to Gibbs, is more cautiousness by the banks, "in which case growth in China is likely to slow further" Gibbs said.

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