In terms of risks going into 2016, China should be “first and foremost” in investors’ minds – with the risk of a hard landing "still on the table".
A roundtable discussion between the chief investment officers of Neuberger Berman singled out China as the key risk for investors in 2016.
Neuberger Berman multi-asset class CIO Erik Knutzen said the importance of China to global investment markets was evident by the market reaction to “marginal changes to Chinese growth at mid-year ”, as well as the devaluation of the yuan.
“Our view is that China is slowing but that it is not going into a hard landing, and that it will continue to be a contributor to global growth on the margin,” Mr Knutzen said.
But Neuberger Berman equities CIO Joe Amato wasn’t so sure, arguing that “you can’t take a hard landing off the table”.
“This is an economy that is moving from an extraordinary level of investment-driven economic activity to one that needs to be driven by consumer activity, and that is a very tough transition to make,” Mr Amato said.
“The government’s policy intervention has reduced that risk, but I think it’s still there,” he said.
Neuberger Berman fixed income CIO Brad Tank said it is very important to separate China’s “very speculative” stock market from what is going on in the real economy.
“The shift [to a consumer-driven economy] is going to take years and will result in lower, more stable growth,” Mr Tank said.
“But I think China, for the foreseeable future, is going to be a source of periodic volatility or uncertainty for the markets, in part because policymakers there are still figuring things out,” he said.
An accompanying report by Neuberger Berman noted that China’s official estimate for GDP growth for 2016 is seven per cent, but markets are “more pessimistic”, discounting the rate of growth to between four and five per cent.
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