Founder & Head of Research, Fortress Hill Advisors

Alex Ng

Founder & Head of Research

Fortress Hill Advisors

Founded in Hong Kong in 2019, Fortress Hill Advisor seeks to provide premium economic and financial researches.

Premium Economic & Investment Research

Macroeconomics

<ul>
<li>France and Japan have seen a large increase in total non-financial sector debt/GDP since 2007, though these have been exceeded by China.  What are the consequences of this build up? </li>
<li>Most of the surge in debt/GDP in Japan and 40% in France is due to higher government debt.</li>
<li>The adverse impact of higher debt and debt servicing on France’s and Japan's economies should be small given a property crash or anti Euro government are avoided.</li>
</ul>


France and Japan have seen a large increase in total non-financial sector debt/GDP since 2007, though these have been exceeded by China.  What are the consequences of this build up? 
Most of the surge in debt/GDP in Japan and 40% in France is due to higher government debt.
The adverse impact of higher debt and debt servicing on France’s and Japan's economies should be small given a property crash or anti Euro government are avoided.


Does Modest Increase in Debt Level of France and Japan Create Problem for Their Economies?

<ul>
<li>Classical economist believes in what is called the "Say's Law" i.e. supply creates its own demand. But the case of China's excess production disproves this law.</li>
<li>Industry output far exceeds demand and inventory is piling up over the last decade.</li>
<li>Heavy industries such as steel, aluminium, cement, coal, and shipbuilding, are particularly prone to over-capacity as China has been over-stretching its infrastructure development since 2008. </li>
</ul>


Classical economist believes in what is called the "Say's Law" i.e. supply creates its own demand. But the case of China's excess production disproves this law.
Industry output far exceeds demand and inventory is piling up over the last decade.
Heavy industries such as steel, aluminium, cement, coal, and shipbuilding, are particularly prone to over-capacity as China has been over-stretching its infrastructure development since 2008. 


China's Excess Production over Domestic Demand

<ul>
<li>Weak industrial output and urban fixed asset investment pose concerns to the health of the economy</li>
<li>The beat in retail sales is likely due to holiday season in May and thus its significance should be discounted</li>
<li>Going forward, we expect these three activity data to be weak unless the authorities launch more fiscal and monetary stimuli.</li>
</ul>


Weak industrial output and urban fixed asset investment pose concerns to the health of the economy
The beat in retail sales is likely due to holiday season in May and thus its significance should be discounted
Going forward, we expect these three activity data to be weak unless the authorities launch more fiscal and monetary stimuli.


Monthly Monitor: China Activity Data (May 2024)

<ul>
<li>Uncertainty about China’s growth outlook over the next 1-2 years has increased with the government undertaking a tricky transition toward sustainable growth and a more active regulatory environment</li>
<li>Further fiscal policy stimulation will be required to keep growth on track to hit 5.0% in 2024</li>
<li>We do not feel that China’s equity market is cheap enough yet to reflect these risks, while domestic investors are not being supported by excess money supply growth.</li>
</ul>


Uncertainty about China’s growth outlook over the next 1-2 years has increased with the government undertaking a tricky transition toward sustainable growth and a more active regulatory environment
Further fiscal policy stimulation will be required to keep growth on track to hit 5.0% in 2024
We do not feel that China’s equity market is cheap enough yet to reflect these risks, while domestic investors are not being supported by excess money supply growth.


<ul>
<li>China has seen a very large increase in total public and private non-financial sector debt/GDP since 2008, which is unlikely to be repeated in the coming decade.</li>
<li>This is curtailing Chinese policymakers’ actions on monetary, credit and fiscal policy to support the economy, and actions risk being less than recent promises.  </li>
<li>Thus we remain of the view that China will struggle to meet growth targets and we look for 4.5% growth in 2024.</li>
</ul>


China has seen a very large increase in total public and private non-financial sector debt/GDP since 2008, which is unlikely to be repeated in the coming decade.
This is curtailing Chinese policymakers’ actions on monetary, credit and fiscal policy to support the economy, and actions risk being less than recent promises.  
Thus we remain of the view that China will struggle to meet growth targets and we look for 4.5% growth in 2024.


Alex Ng is the founder and head of research of the economic and investment research house Fortress Hill Advisors. Prior to founding Fortress Hill Advisors, he worked as an economic research analyst across government, academic, and financial institutes including the Hong Kong Financial Secretary’s Office (Office of the Government Economist), Economic Research Center of the Institute of Asia-Pacific Studies at CUHK, and State Street Global Markets. Alex holds a Master of Arts in Economics degree from Columbia University in the City of New York and a Bachelor of Arts in Economics and Mathematics from Wesleyan University (CT, USA).

Our firm's expertise lies in macroeconomics, global macro,  global thematic research, company and equity research, multi-asset strategy, event driven, and ESG.

We also do proprietary trading on the firm's capital, to try to vindicate our investment thesis. Our flagship publication, Heard from Fortress Hill (HFFH) provides our weekly market observations and is freely available on our website: https://fortresshill-advisors.com/hffh/