“Moreover,” he added, “the devaluation is not being described in Western media as Chinese “stimulus”, which it surely is and would send markets higher if portrayed in this light, but as Chinese “currency competition” and as a sign that the growth problems in China are more severe than Western central bankers would like to believe.”
And, he adds, it is a change that will accelerate, leading to further downward pressure on oil and any other global growth-sensitive asset, unless this narrative shifts.
Phillip Saunders, manager of the Investec Diversified Growth Fund, believes that China’s overriding priority is ensuring the health of its domestic recovery and, he says, if push comes to shove that will take precedence over the broader economic liberalisation policy. But, he adds, in some respects the same can be said for the Fed, which regards the macroeconomic condition of the US as the single most important determinator of its monetary policy.
“We remain of the view that the US will raise rates either in September or in the meeting following that,” he adds. “While it is clear that expectations of future inflation have moderated, they do need to raise rates, primarily because the labour market is progressively tightening.
There is, of course, every possibility that China’s growth is not as strong as its government would have people believe, that its recent moves are an indication of increasing desperation. But, if there is one thing that can be said with certainty of markets over the past few years, it is that central bankers continue to rule the roost. And, despite the conventional wisdom, especially when it comes to an unconventional market like China, market participants would do well to remember that.
