Earlier today Bank of America released a presentation and a conference call in which the firm's head of China equity strategy David Cui spoke about the dreaded "China Hard Landing" or the event that would kill all decoupling dreams for ever and ever, and probably lead to a world depression. It seems that the latest down move in the market is being partially attributed to just this notification finally making the rounds as can be seen in the note below: "BofAML’s David Cui is the Markets’ #1 rated China Strategist according to the 2011 Institutional Investor All-China Survey. While he is not responsible for our China GDP forecast, he sees significant Chinese specific financial market risks that could trigger lower than expected Chinese growth. He sees that those financial market risks as having increased considerably. He will expand on this on the call, but he sees these financial stresses as having a very high probability of triggering lower than expected growth. That lower growth could well be sub 7%, and therefore by Chinese market standards would be termed a “hard landing”, clearly a HUGE issue for all global markets." Granted this is not news to those who have been following the Chinese situation (as fringe blogs have been for over a year), but the market does tend to have a habit of being about 12-18 months behind the curve. Here is what Bank of America had to say...
From Bank of America:
Fitch's head of sovereign rating Andrew Colquhoun commented that in the near term, the biggest risk to China's sovereign rating is the banking sector.
BofAML’s David Cui was ahead of the curve on this one:
He believes that there is still a large downside risk in China.
David believes that there is a good probability of a hard landing, he highlights timing associated with this could be past 2013 with the new administration.
After 3 years of loose monetary policy David doesn't think it would be wise for the government to ease from here and if what David fears about the underlying lending markets materializes then more aggressive drop is quite possible.
The anecdotes coming from this underground market are really serious and although some technical rebound for equities is probably due, this shouldn't be taken as an actual turning point.
Furthermore, copper is said to be the commodity with a “PHD in Economics”…. Look what it is telling us:
And the full presentation given to clients as part of BAC's 9 am conference call: