China

The Chinese authorities are stepping up coordinated efforts to boost the economy. There has been a clear shift of policy focus from the "supply side" reforms to "demand side" management. Quickening credit creation bodes well for industrial activity, the hardest hit sector in the ongoing growth slowdown.

Credit growth acceleration in China is a bearish development in the long run. Potential non-performing loans at Chinese banks could wipe out 40-55% of their equity capital. "Muddling through" for China, from its own internal standpoint, is possible. However, Chinese stocks and China-related equities worldwide will remain in a bear market. From the perspective of the rest of the world, China is now in recession.

There is no sign that the Chinese economy has suddenly lost momentum. The credit and monetary cycle appears to be picking up. Meanwhile, our bottom-up analysis shows no evidence of a rapid buildup in leverage in China's corporate sector, as commonly perceived.

Global trade is plummeting as commodity prices remain depressed and emerging markets unravel. Even if oil were not plumbing new lows, we would remain bearish on EM economies, where poor governance and low efficiency suggest that more crises will rear their heads. Above all, we are watching China for policy clarity. After seizing 14% of global exports in recent years, it is now exporting surplus goods into an already deflationary world. Protectionism - not a coordinated response among leading countries - is the likely result. In essence, we reiterate our theme that globalization has peaked. Along the way, we call attention to five geopolitical "Black Swans" that <i>no one</i> is talking about.

This week we are publishing a new thematic chartpack <i>The BCA China Industry Watch</i> in an effort to monitor the growth profiles, balance sheet strength and stock market performances of major Chinese industrial sectors.

Oil markets will continue to be buffeted by Russian overtures to OPEC suggesting a desire to orchestrate a production cut-back, while uncertainty over the Fed's next move keeps markets on edge.

An improvement in the euro area credit impulse is encouraging, but we explain why it is not enough to sustainably boost risk-assets.

China's capital outflows since last year can be broadly grouped into three categories: reduced foreign inflows (and accelerated outflows), domestic firms deleveraging dollar debts, and domestic entities increasing dollar assets. Barring an extreme scenario, the PBoC should have more than enough ammunition to defend the RMB, should it opt to.

The Fed will upset the rebalancing of oil markets if it misreads the current sell-off as weakness in oil demand.