China: Stress eases but negative effects to hit next 6-9 months – Danske Bank

Financial stress is starting to fade as China may be easing its foot off the brake to avoid too much economic damage, feels Chief Analyst, Allan von Mehren at Danske Bank.

Key Quotes

“This is a normal Chinese pattern – two steps forward and one step back when pain sets in.”

“The implied put in the bond market is probably luring investors back to bonds seeing value now.”

“However, the credit tightening already done will weigh on growth over next six to nine months.”

“There will be no crisis though, in our view. China will be quick to ease again if negative economic effects turnout to be bigger than expected. However, the slowdown effects will still be felt in global economy and on inflation, where China is becoming a deflationary force again.”

“Eventually losses will mount from rapid credit growth in the past and too much investment which is not productive in the long run. For now, however, China can keep kicking the can down the road.”