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China: is financial deleveraging a concern for investors?


The essential

Financial deleveraging in China has been a concern for investors, but we believe it is overdone both in terms of expected potential liquidity tightening and market corrections. It only results in credit tightening in the financial sector, not in the real economy, and not in monetary tightening. Hence, we believe market worries over financial deleveraging will subside from H2 17 (probably from July/August), and headwinds may return again around Q1 2018 when full implementation is rolled out.

We believe the current financial deleveraging measures will impact three areas in particular: (1) equity and bond market leverage (the size may come down by RMB 2 to 3 trillion from currently RMB 10 trillion); (2) lower quality real estate and infrastructure investments; (3) bond issuance by low-quality issuers. The reallocation may be: (1) shifting nonstandardised credit assets to regular highquality loans; (2) shifting bond investments back to banks, and shifting equity investments in small-cap companies to large-cap companies; (3) shifting irregular loan practices in small and mid-sized banks to regular high-quality loans. And the reallocation overall will be positive long term for the health of the Chinese financial markets and the real economy.


June 2017


Juin 2017


The Article


JI Mo , Amundi Hong Kong Chief Economist
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