Chinese bonds may be the new mantra for global investors in reallocating their assets? It looks like many asset managers are considering a more meaningful portion of their portfolios in Chinese bonds.
At first glance they seem to make the right decision. China’s financial place may have some points to attract investors in credit. The country is averaging 9.63 percent of economic growth between 1989 and 2018 and, even if the score is of 6.8 percent “only” in 2018, it exceeds by far the economic results of both North America and of the European Union.
China recorded far safer government debt figures than the 97 percent of GDP for France, and the 105% of GDP for the US. But these figures are somehow misleading because they don’t tell the whole truth about the credit dynamics of a country. You must add to it, the local government debt, the household debt, and debt to non financial corporate businesses. You also must bear in mind that official stats are somewhat inaccurate and all but helpful for the usual economist to fulfill her/his data crunching exercise.
In the absence of relevant maths sources, old timers among economist are left with revisiting past events. In the case of China, it is quite interesting to get back to the 1997 Asian Crisis. Sure the 1997 Asian Crisis has been ignited by the Thai lack of US currency to properly peg the Bath, a crisis that spread to the neighboring countries – Indonesia, Philippines, before hurting South Korea, Hong Kong, Singapore and China. And foreign investors could discover, in all these countries, the existence of credit bubbles and of unsuspected amounts of nonperforming loans both in corporate and institution businesses in these countries. The story had a happy end for these countries which strong recoveries, a less so happy one for some western investors who did not recover their money invested previously.
With the turmoil’s of the 2007 and 2008’s global financial crisis, such story seems very much of the past. And yet it may be more than ever a guidance for today to invest cautiously and selectively in this area were official figures lack accuracy, even more there that in the western countries.
Dominique F. Pasquier www.brcsas.com