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Analysts Expect These Measures from China to Arrest Slowdown

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J.P. Morgan says more measures are needed

Like many market participants, J.P. Morgan (JPM) also feels that China (MCHI) needs to do much more to stimulate its economy. As reported by CNBC, J.P. Morgan asset management’s global market (ACWI) strategist, Hannah Anderson, said China needs “a little more aggressive easing” than its government has done so far. She also noted that the measures thus far are “not adding that much liquidity into the market in China.” She added, “So, we should expect further easing ahead.”

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Goldman Sachs thinks infrastructure investment will accelerate

Goldman Sachs (GS) recently cut its outlook on metals (XME) due to China’s deceleration. The firm expects that China will respond by stoking expansion, which could aid recovery in copper (FCX) and aluminum (AA). As reported by Bloomberg, GS believes that “policy will need to ease in order to offset the weakness in many parts of the economy.” It expects the infrastructure investment to accelerate to 10% in 2019 from 4% in 2018.

UBS and Nomura

UBS Group AG also expects additional easing from China after the 100 basis-point cut to the reserve requirement ratio (or RRR). Among other measures, it expects tax cuts and increased fiscal spending. UBS, however, doesn’t expect significant property policy easing anytime soon unless there is a marked slowdown in the property market or the trade war with the US (SPY) (VTI) escalates.

Nomura believes that after the recent RRR cut, the central bank could cut the RRR by a further 150 basis points. In addition, the central bank could inject more liquidity into the system through a medium-term lending facility.

While Chinese authorities may try to arrest the slowdown with policy easing, some issues seem to be structural in nature and will need much more than policy changes to go away. We’ll discuss these structural issues in the next part of this series.

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