OppenheimerFund’s Director of Emerging Market Equities, Justin Leverenz, shares his view on China’s economy.
Justin Leverenz, Director of Emerging Market Equities, sits down for a Q&A to discuss the implications of Chinese slowdown on emerging markets.
Are you concerned about a slowdown in China?
The slowdown in China has been the main culprit for the recent market panic, but against the backdrop of economic challenges and ongoing trade conflicts, China’s circumstances are manageable. Its transition toward a service-oriented, consumer economy is creating concerns due to the resulting growth deceleration, but it is a necessary step for achieving sustainable levels of growth.
Looking forward, any stimulus in China will proceed in dribs and drabs, but the credit taps are unlikely to be opened as wide as they were in past slowdowns since that would go against the country’s need to rebalance the economy and clean up the financial sector. Rather, China might implement reforms focused on redistribution of wealth and resources within the economy, targeting the hundreds of millions of people in urban areas living without access to healthcare and education.
Even at a slower 5% pace over the long term, China will still account for 30%-40% of global GDP growth, making it the world’s single largest growth engine behind the United States. However, the future drivers in China are going to be quite different from those of the past 30 years. Just a decade ago, China was running a nearly 10% current account surplus relative to GDP, a number that is now closer to zero. This externally fueled supernormal growth is largely evaporating. Private sector companies are now the major employers in the economy. In 2017, China created one-third of new unicorns [companies with market values of $1 billion or more] globally, and 7 of the top 10 in terms of valuation. These companies will continue to grow in importance, and many are likely to generate strong returns for opportunistic investors.
After a significant market correction, do you believe fragilities in the emerging market landscape may be exaggerated?
