EMTA Forum in Hong Kong - Oct. 20
EMTA FORUM IN HONG KONG
Friday, October 20, 2017
Sponsored by 
JW Marriott
Pacific Place, 88 Queensway
Salon 6 - JW Marriott Ballroom (Level 3)
Hong Kong
12:00 noon - Registration
12:30 p.m. - Luncheon and Panel Begin
"Investing in Asia 2017-2018: Prospects and Risks"
Robert Carnell (ING Bank) – Moderator
Anthony Chan (AB)
Johanna Chua (Citi)
Andrew Tilton (Goldman Sachs)
Stephen Chang (JP Morgan Asset Management)
Luncheon will be served with the compliments of ING Bank.
Additional support provided by MarketAxess.
Registration fee for EMTA Members: US$50 / US$695 for Non-members.
EMTA Hong Kong Panel Discusses Chinese President Xi’s Second Term Focus
The Chinese Communist party’s twice-a-decade Congress was among the main topics at EMTA’s 12th Annual Forum in Hong Kong. ING sponsored the lunch-time event, held on Friday, October 20, 2017, and attended by 100 EM market participants.
Moderator Robert Carnell (ING) requested that panelists discuss their views of macroeconomic factors facing the international economy. Anthony Chan (AB) addressed US interest rate policy, anticipating a US FOMC rate hike in December and noting that possible future Fed Chair John Taylor, whom he considered a frontrunner for the position, was likely to adopt a more hawkish view.
In contrast, Johanna Chua (Citi) believed that Jerome Powell would be named the next Fed Chair. However, Chua was “less worried about Fed policy,” and urged investors to instead focus on potential US tax cuts. She maintained an optimistic view of the prospect of US tax cuts being enacted, and expected the eventual package to be front-loaded, with some adjustments at the end of ten years.
Taking a more cautious view, “tax reform is going to be pretty minimal in terms of its impact on US growth,” opined Andrew Tilton (Goldman Sachs). He believed US tax cuts would add only 10 to 20 bps of growth; “it won’t be an enormous factor.”
Stephen Chang (JP Morgan Asset Management) observed that the market was not pricing in dramatic US rate hikes in 2018. He added that, “next year we need to see what the other Central Banks will be doing, such as tapering by the ECB.”
With low rates, growth in the US and EU and a weak dollar, panelists didn’t foresee an immediate threat to EM’s “Goldilocks” scenario. “Not a lot of things are keeping me up at night lately,” revealed Chan, venturing that, “maybe this situation could go on a bit longer.” Chua listed a potential rate surprise, overconfidence in policymakers or an unexpected political development as possible triggers for a market sell-off. For Chang, the market’s current “pricing to perfection” itself constituted a risk.
Chinese President Xi’s Party Congress speech, as well as the meeting itself, was raised by Carnell for panel insight. “The Party Congress is a coronation for Xi to get canonical stature…he can do a lot of things in this new era,” declared Chan. Investors should now monitor whether Beijing would adopt a more flexible growth policy, one without a specific growth target, as well as improvements in environmental policy. “Growth may surprise on the downside now that the environment is a major factor,” he cautioned.
Chua disagreed that President Xi was de-emphasizing growth, and believed that a 6.5% growth target might be maintained. She added that the President’s speech also emphasized the major role of the state in the economy and in industrial policy; and that nothing in Xi’s remarks suggested a major liberalization in the financial markets. In concurrence, Tilton seconded that it was unlikely that official target on “reasonably high growth” would fade away.
Chang still believed the final formation of the Communist party’s Standing Committee was worthy of monitoring. The pace of reforms, such as the removal of excess capacity, was increasing in his view, and also warranted investor attention. Chan ventured that if Xi were to remain the country’s paramount leader for “a long time,” as has been speculated, the Chinese leader might feel liberated from the time constraint of an additional five-year term. He observed that “reform” in China did not match the Western definition of the term, and continued to include state planning, with SOEs having a dominant economic role.
Carnell referred to China’s high level of debt, sparking the recent S&P credit downgrade, and asked what level of concern it raised for speakers. “I can relax in the short-term; it’s not good when a country borrows a lot from foreigners short-term, but this is clearly not the case in China,” replied Tilton. He found China’s “targeted tightening” towards shadow banking and real estate speculation to be encouraging.
Chang agreed that the government’s moves to reduce the shadow banking have been well received by the market. He also underscored that, in order to avoid high debt levels from becoming a greater concern, China needed to keep growing at high rates.
Investor speakers discussed the possible rationales for China’s upcoming US-dollar sovereign issue. Chan speculated that Beijing might be hoping to have a tightly-priced deal demonstrate to the ratings agencies the error of their downgrades. If China was shifting its debt burden externally, that could be a risky strategy, he stated. Chang believed that China could be setting benchmarks for future quasi-sovereign issuance.
Other topics debated by the panel included China’s One Belt One Road initiative and its beneficiaries, as well as greater index inclusion for Chinese debt.