William Blair views China as glass half full


By Kristen Crawford

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China’s current economic environment might be clouded by uncertainty, however, the extreme panic prompted by its issues could be considered an opportunity to buy, an industry executive said yesterday.

William Blair partner and head of the dynamic allocation strategies team Brian Singer said although many people were highly concerned about China’s growth, he believed the situation was okay there.

“Everyone is aware of China’s horrid debt levels and [Chinese financial markets analyst] Michael Pettis has done some great work, but he is China’s ‘Chicken Little’,” Singer said, referring to his panic-style predictions.

“He discovered through his research that China has built up a lot of debt and he is right. China’s debt to gross domestic product (GDP), however, is pretty close to the United States’ and Germany’s.

“If we’re all so terribly concerned about China’s debt to GDP levels, why aren’t we equally as concerned about the US?”

In reality, the US would like to have the debt to GDP levels and growth dynamic China had, he said.

“The US is growing at 1.5 per cent and would take an eternity to absorb that debt,” he said.

“Even if [China’s] growth is slowed from double digits down to 4 or 5 per cent, they would still be absorbing that debt a lot faster the US could.”

Meanwhile, particular aspects of shadow banking, China’s lack of infrastructure and its high-level urban migration also posed concerns for investors considering China.

“At the margin, things have slowed down and when you add all these things together, in our view double-digit growth is not viable for China, but does not mean it will grow at 1 per cent like the developed world either,” Singer said.

“[We think China’s growth] will be something around 5 per cent, which is a reasonable assumption over the coming 10 to 20 years.

“If the market today wants to focus on some 3.6 per cent devaluation of the Chinese yuan as the end, fine, let them do that, but from our perspective that creates opportunity.”

Further, William Blair was trying to understand why prices had deviated from fundamental values, which were predicated on a longer-term growth scenario, however, the market had been focused on something shorter term, he said.

“Yes [the combined issues creating uncertainty for China] are a concern, but it is not the end of China as we know it.”

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