Cross-Asset Strategist & Quantitative Analyst, Pennock Idea Hub

Cam Hui

Cam Hui has been professionally involved in the financial markets since 1985 in a variety of roles, both as a quantitative equity portfolio manager and as a sell-side analyst. He graduated with a degree in Computer Science from the University of British Columbia in 1980 and obtained his CFA Charter in 1989.

Cross-Asset Strategist & Quantitative Analyst

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Pennock Idea Hub

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Cross-Asset & Quantitative Research

Thematic (Sector/Industry)

For investors, China is becoming the elephant in the room. The country accounts for roughly one-third of global GDP growth, and its economic growth rate is decelerating. <a href="https://amp.smh.com.au/business/the-economy/it-could-be-on-the-scale-of-2008-expert-sends-warning-on-china-downturn-20190124-p50t9q.html" target="_blank">Ken Rogoff</a> believes China is hitting the debt wall:Harvard professor Ken Rogoff said the key policy instruments of the Communist Party are losing traction and the country has exhausted its credit-driven growth model. This is rapidly becoming the greatest single threat to the global financial system."People have this stupefying belief that China is different from everywhere else and can grow to the moon," said Professor Rogoff, a former chief economist at the International Monetary Fund."China can't just keep creating credit. They are in a serious growth recession and the trade war is kicking them on the way down," he told UK's The Daily Telegraph, speaking before the World Economic Forum in Davos.“There will have to be a de facto nationalisation of large parts of the economy. I fear this really could be 'it' at last and they are going to have their own kind of Minsky moment,” he said.How worried should we be about China?Our base-case scenario is no crash in 2019. The limited stimulus package announced by Beijing will have some effect, and it will likely buy the country another two or three quarters of growth. At the same time, China is desperate to reach a trade agreement with the U.S.The Trump administration has also shown that it is highly sensitive to stock market movement, and it is also eager to reach an agreement. As one simple example, after stock prices weakened on January 22, National Economic Council director Larry Kudlow appeared on CNBC to sooth markets and deny reports that a planned meeting between Chinese and American negotiators had been canceled. This is a signal that American negotiators are sensitive to pressure from Wall Street to make an agreement.Expect difficult negotiations to last right up to the March 1 deadline, but a limited deal to be signed. But that will not be the end of the story. The next battle will be over review, enforcement and verification of reform initiatives.On the other hand, the fundamental nature of the Sino-American relationship is changing. Years of negotiation with past administrations have led to a sense of promise fatigue from both sides of the aisle. A consensus is emerging that China is becoming a strategic competitor. Cold War 2.0 has begun, and 2020 will be a difficult year for U.S.-China relations as aspiring candidates will try to show how tough they are on China.Apocalypse Not Yet, but be wary.

For investors, China is becoming the elephant in the room. The country accounts for roughly one-third of global GDP growth, and its economic growth rate is decelerating. Ken Rogoff believes China is hitting the debt wall:Harvard professor Ken Rogoff said the key policy instruments of the Communist Party are losing traction and the country has exhausted its credit-driven growth model. This is rapidly becoming the greatest single threat to the global financial system."People have this stupefying belief that China is different from everywhere else and can grow to the moon," said Professor Rogoff, a former chief economist at the International Monetary Fund."China can't just keep creating credit. They are in a serious growth recession and the trade war is kicking them on the way down," he told UK's The Daily Telegraph, speaking before the World Economic Forum in Davos.“There will have to be a de facto nationalisation of large parts of the economy. I fear this really could be 'it' at last and they are going to have their own kind of Minsky moment,” he said.How worried should we be about China?Our base-case scenario is no crash in 2019. The limited stimulus package announced by Beijing will have some effect, and it will likely buy the country another two or three quarters of growth. At the same time, China is desperate to reach a trade agreement with the U.S.The Trump administration has also shown that it is highly sensitive to stock market movement, and it is also eager to reach an agreement. As one simple example, after stock prices weakened on January 22, National Economic Council director Larry Kudlow appeared on CNBC to sooth markets and deny reports that a planned meeting between Chinese and American negotiators had been canceled. This is a signal that American negotiators are sensitive to pressure from Wall Street to make an agreement.Expect difficult negotiations to last right up to the March 1 deadline, but a limited deal to be signed. But that will not be the end of the story. The next battle will be over review, enforcement and verification of reform initiatives.On the other hand, the fundamental nature of the Sino-American relationship is changing. Years of negotiation with past administrations have led to a sense of promise fatigue from both sides of the aisle. A consensus is emerging that China is becoming a strategic competitor. Cold War 2.0 has begun, and 2020 will be a difficult year for U.S.-China relations as aspiring candidates will try to show how tough they are on China.Apocalypse Not Yet, but be wary.

How Worried Should You Be About China?