In the manufacturing sector, China’s growth has slowed to its slowest level in two years, and home sales — along with exports — are ebbing. Premier Wen Jiabao’s formula to save China and the rest of the world by creating a lending boom is both odd and unimaginative. The strategy did not work in developed economies like the U.S. — and it won’t work elsewhere. (See the horrific results of former Federal Reserve Chairman Alan Greenspan’s decision to keep interest rates too low for too long.)
Financial Crisis Doesn’t Play Favorites
Europe’s financial crisis has taught us that a financial crisis doesn’t take a holiday, nor does it play favorites. The problems that began with fringe countries like Greece and Portugal have now infected France and Germany. How does this relate to emerging markets?
Emerging-market countries are not invincible like the enthusiastic academics paint them to be.
Interestingly, a Bloomberg poll of global investors showed that 61% expect a financial crash and a banking crisis in China by 2016. The poll’s respondents probably are right, with the exception that a Chinese blowup might not take as long to unfold as they assume.
Sixty-one percent of respondents said they anticipate a crash in the financial industry by late 2016, and only 10% were confident China’s banks will escape trouble, according to the quarterly poll of 1,097 investors, analysts and traders who are Bloomberg subscribers (conducted Dec. 5-6).
Nevertheless, there are a few holdouts.
Economists from Goldman Sachs (NYSE:GS) and the International Monetary Fund still forecast China will avoid recession and keep a lid on inflationary pressures. A report from Goldman Sachs in early December projected China’s GDP to grow 8.6% in 2012. To achieve results like that, China has zero margin for error.
Rather than buying into the popular theory of economic decoupling, we encourage investors to analyze the facts and remain skeptical.
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Ron DeLegge is the editor of ETFguide.com and author of “Gents with No Cents: A Closer Look at Wall Street, its Customers, Financial Regulators, and the Media“ (Half Full Publishing, 2011).