Deutsche Bank presents its 2014 China investment strategy and economic outlook at DB Access China Conference
Deutsche Bank today outlined its 2014 China investment strategy and economic outlook at its 12th annual DB Access China Conference in Beijing. The event, which is being held January 13-15, is one of the largest investor conferences in China and will attract nearly 1,000 investors from many of the world’s largest asset management houses, hedge funds, pension funds, and banks.
Dr. Jun Ma, Deutsche Bank’s Chief Economist for Greater China, who was ranked the No. 1 China economist in the past several years by the Institutional Investor survey and by Asiamoney’s broker poll, delivered the keynote address. In his presentation, Dr. Ma outlined an expectation that GDP growth in China will continue its recovery and reach 8.6% in 2014. This growth will be supported by reduced overcapacity and a more favorable demand-supply balance, deregulation in key sectors that will accelerate investment growth, rising money velocity, rebounding external demand, and a pro-cyclical fiscal policy with increased government spending on infrastructure.
“2014 will be a year defined by significant reforms that will shape the future path of development for China’s macroeconomy,” commented Dr Ma. “Reforms should begin to enhance growth in 2014, mainly by boosting private investment in sectors such as railway, subway, healthcare, financial, new energy, and environment.”
Dr. Ma also mentioned several risks to his baseline growth forecast: “Key downside risks include weaker than expected external demand pickup, faster than expected property price inflation in China which could trigger harsher policy responses, high volatility of interbank rates in the transition of monetary policy focus to interest rate targeting, and continued geopolitical risks.”
With respect to monetary policy, Deutsche Bank’s expectation is that interest rates will remain stable for the first half of the year and may shift towards a tightening bias in the second half of the year. Dr. Ma forecasts that RMB appreciation against the USD will reach 2% by year-end with an increase in the currency’s two-way volatility.
Regarding equity strategy, Dr. Ma forecasts an upside potential of 20% for the MSCI China in 2014, based on an expectation of stronger than expected earnings growth, cyclical growth recovery, and the positive impact of reforms. Reforms as implemented are expected to improve market consensus on China’s growth potential and help reduce concerns on macro risks and EPS volatility.
Dr. Ma also outlined six key structural themes that investors should consider in 2014:
- Export recovery: Stronger G3 demand should accelerate Chinese export growth in 2014, and benefit the shipping, ports, textile, electronics and machinery sectors.
- Capex recovery: Driven by improved money velocity, deregulation, and better fiscal performance, higher capex should imply stronger than expected demand growth in the railway, subway, environment, new energy, IT infrastructure and raw material sectors.
- Deregulation: Railway/subway, new energy, healthcare and internet firms should benefit, due to higher private investment and expanded business scope.
- Financial reform: Banks will likely benefit from reduced local government financing vehicle loan risks and milder than expected margin compression.
- Social security reform: The insurance and healthcare sectors will likely see acceleration in earnings growth as a result of reforms in these areas.
- New anti-pollution initiatives: Gas, wind, and clean coal sectors will accelerate.
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Deutsche Bank in China
Deutsche Bank first established a presence in China in 1872 with the opening of its first overseas office in Shanghai. Headquartered in Beijing, Deutsche Bank China completed local incorporation in 2008, currently with branches in Beijing, Shanghai, Guangzhou, Tianjin, Chongqing and Qingdao. Deutsche Bank has a regional hub in Hong Kong SAR, which celebrates its 55th anniversary in 2013. The bank also maintains securities representative offices in Beijing and Shanghai.
Through rapid organic growth and strategic investments, Deutsche Bank’s core global businesses are all active in China. These include corporate advisory and capital markets, transaction banking, as well as asset and wealth management.
In May 2006, Deutsche Bank acquired a stake in Hua Xia Bank – a national bank listed on the Shanghai Stock Exchange. Subsequently, Deutsche Bank increased its holdings in Hua Xia Bank in October 2008 and then in April 2011, resulting in the current equity ownership of 19.99%.
On the asset management front, Deutsche Bank holds a 30% strategic investment in Harvest Funds Management – one of the country’s leading investment managers.
In July 2009, the joint venture between Deutsche Bank and Shanxi Securities – Zhong De Securities Co. Ltd. – received a securities business license from the China Securities Regulatory Commission (CSRC). Zhong De Securities is currently approved to underwrite and sponsor stocks and bonds (including A-shares, foreign investment shares, government bonds, and corporate bonds), as well as provide corporate advisory services in the domestic capital market. Deutsche Bank holds a 33.3% ownership in the joint venture.
For more information about Deutsche Bank China: https://china.db.com
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