06-01-2005, 05:39 AM
<b>India sheen glitters as China crawls: CLSA </b>
Jim Walker of CLSA says that a downturn in China is likely in the next two years. This is likely to put the foreign investor focus squarely on India.
Jim Walker of CLSA says that China is unlikely to see steady growth as in the past, and a downturn is likely in the next two years. This is likely to put the foreign investor focus squarely on India, he adds.
According to Walker, Chinaâs GDP growth is expected to slow down to 6% in 2006, though 2005 may see it growing by 8-9%. The country's corporate profitability is also under pressure. The Chinese authorities are not talking about revaluating the yuan any time soon, either, he adds.
While the demand for oil is set to rise further, the pressure from China should actually ease, Walker said. Again, while commodity prices should remain firm and the commodity upcycle is expected to continue, no spectacular rise in demand is seen.
On the sidelines of the China slowdown, CLSA's view on Indian companies is positive as they focus on ROCE's and ROI's. Walker says, that foreign investors are expected to focus on India as China weakens, going forward.
Excerpts from an exclusive CNBC-TV18 interview with Jim Walker:
On the expected China slowdown.
I do not think we are going to see that kind of steady growth, as over the last couple of years. We see China having cycles, the same as every other country in the world over the course of the next two years. We expect the cyclical down turn to be a nasty one. This year, there should be plenty of momentum in the Chinese economy and they are starting to struggle with profitability. This year, we are looking at 8-9% GDP growth, far off last year's mark. Next year, we are looking at 6-7%, and in 2007 we expect things to be significantly slower.
On how the slowdown will translate into investor interest in India.
The Indian companies and the corporate sector in India are more focused on the returns from the capital, returns from investment, and returns from equity. The China model was much more market-shield driven, which means they have very little interest in profitability. So I think foreign investors are going to increasingly turn to India, looking for opportunities to invest in the Indian economy, especially given the steady growth and the focus of companies. In China, they are going to get through the cycle and domestic demand is increasing. But the growth in China is going to take a long time, before it turns into profitability.
Whether the China slowdown will have a big impact on commodity prices.
The good news is, there is very strong capital construction cycle going on in China, where infrastructure is being built and urbanisation is an ongoing process. We expect the long cycle to continue and that is the main area where the commodities are consumed. As for the machinery and machine tool area, we expect to see a severe downturn in the investment cycle. So the commodity side will hold up reasonably well, although the growth rate will be weighed down from the last two to three years. It is for the machines and machinery equipment that the Japanese and European manufacturers need to watch. They have been having a field day over the last few years.
On whether the China slowdown will be a negative for oil prices.
I do not think it is really negative. There will still be continued uptake in the demand for oil. People are expecting 15-20% increase each year and I think they are going to be disappointed. Next year, I would expect China to grow in its demand in single digits and even in the year after in mid-single digits.
On when the revaluation of the yuan may come.
The Chinese authorities are not talking about very much. Increasingly, they are concerned about developments within the economy. The removal of the textile tariffs on some of their exports is almost a pre-emptive retaliation against the US and the EU for putting on such controls on Chinese textiles. As a result of that, the manufacturing sector has stopped creating new jobs in China. This is very serious for the Chinese. This will undermine the possibilities of job creation and economic growth, and that means a very slight move on the yuan, if any at all.
http://www.moneycontrol.com/backends/News/...p?autono=168750
Jim Walker of CLSA says that a downturn in China is likely in the next two years. This is likely to put the foreign investor focus squarely on India.
Jim Walker of CLSA says that China is unlikely to see steady growth as in the past, and a downturn is likely in the next two years. This is likely to put the foreign investor focus squarely on India, he adds.
According to Walker, Chinaâs GDP growth is expected to slow down to 6% in 2006, though 2005 may see it growing by 8-9%. The country's corporate profitability is also under pressure. The Chinese authorities are not talking about revaluating the yuan any time soon, either, he adds.
While the demand for oil is set to rise further, the pressure from China should actually ease, Walker said. Again, while commodity prices should remain firm and the commodity upcycle is expected to continue, no spectacular rise in demand is seen.
On the sidelines of the China slowdown, CLSA's view on Indian companies is positive as they focus on ROCE's and ROI's. Walker says, that foreign investors are expected to focus on India as China weakens, going forward.
Excerpts from an exclusive CNBC-TV18 interview with Jim Walker:
On the expected China slowdown.
I do not think we are going to see that kind of steady growth, as over the last couple of years. We see China having cycles, the same as every other country in the world over the course of the next two years. We expect the cyclical down turn to be a nasty one. This year, there should be plenty of momentum in the Chinese economy and they are starting to struggle with profitability. This year, we are looking at 8-9% GDP growth, far off last year's mark. Next year, we are looking at 6-7%, and in 2007 we expect things to be significantly slower.
On how the slowdown will translate into investor interest in India.
The Indian companies and the corporate sector in India are more focused on the returns from the capital, returns from investment, and returns from equity. The China model was much more market-shield driven, which means they have very little interest in profitability. So I think foreign investors are going to increasingly turn to India, looking for opportunities to invest in the Indian economy, especially given the steady growth and the focus of companies. In China, they are going to get through the cycle and domestic demand is increasing. But the growth in China is going to take a long time, before it turns into profitability.
Whether the China slowdown will have a big impact on commodity prices.
The good news is, there is very strong capital construction cycle going on in China, where infrastructure is being built and urbanisation is an ongoing process. We expect the long cycle to continue and that is the main area where the commodities are consumed. As for the machinery and machine tool area, we expect to see a severe downturn in the investment cycle. So the commodity side will hold up reasonably well, although the growth rate will be weighed down from the last two to three years. It is for the machines and machinery equipment that the Japanese and European manufacturers need to watch. They have been having a field day over the last few years.
On whether the China slowdown will be a negative for oil prices.
I do not think it is really negative. There will still be continued uptake in the demand for oil. People are expecting 15-20% increase each year and I think they are going to be disappointed. Next year, I would expect China to grow in its demand in single digits and even in the year after in mid-single digits.
On when the revaluation of the yuan may come.
The Chinese authorities are not talking about very much. Increasingly, they are concerned about developments within the economy. The removal of the textile tariffs on some of their exports is almost a pre-emptive retaliation against the US and the EU for putting on such controls on Chinese textiles. As a result of that, the manufacturing sector has stopped creating new jobs in China. This is very serious for the Chinese. This will undermine the possibilities of job creation and economic growth, and that means a very slight move on the yuan, if any at all.
http://www.moneycontrol.com/backends/News/...p?autono=168750