BlackRock sees Chinese growth surprise as bond risk slides

BlackRock Inc., the world’s largest asset manager, expects China’s economy to “surprise on the upside” for the rest of the year, after the cost of insuring the nation’s debt fell the most in Asia this quarter.
China’s credit-default swap contracts have declined 39 basis points since June 30, the most of any major sovereign in the region, according to data provider CMA. The extra yield Chinese borrowers pay over Treasuries to raise dollars in the debt market dropped 44 basis points in the same period to 362 on Sept. 16, the lowest since January, according to JPMorgan Chase & Co. indexes. That exceeds the 17 basis-point decline for all Asian issuers.
Bank of America Corp., UBS AG and ING Groep NV have raised China’s growth forecasts for 2013 after factory output expanded the most in 17 months in August, even as other Asian nations grapple with slowdowns. Regional currencies rallied on expectations Federal Reserve Chairman Ben S. Bernanke’s decision last week to maintain quantitative easing will staunch a $50 billion flow from emerging-market funds since May.
“China seems to be the one bright spot now,” said Suanjin Tan, a Singapore-based Asia fixed-income portfolio manager at BlackRock. “Emerging-market tourists are finding it more attractive to invest back home, unless the surprise decision by Mr. Bernanke not to taper QE sends them back into the hunt-for- yield paradigm.”

Rising Output

Industrial production in China rose 10.4% in August from a year earlier, the National Bureau of Statistics said in a statement in Beijing on Sept. 10, beating the median 9.9% forecast of 45 analysts surveyed by Bloomberg News. A separate manufacturing gauge rose to a six-month high in September. The preliminary reading of 51.2 for a Purchasing Managers’ Index released today by HSBC Holdings Plc and Markit Economics advanced from 50.1 in August.
UBS boosted its outlook earlier this month for the nation’s economic expansion in 2013 to 7.6% from 7.5%, citing the stronger-than-expected factory production. ING increased its forecast for the year to 7.7% from 7.5%, while Bank of America now projects 7.7% growth, up from 7.6% according to e-mailed notes.
“Stability is very important from a market standpoint and that’s what we seem to be getting now,” said Kaushik Rudra, the global head of credit research in Singapore at Standard Chartered Plc. “That is providing a decent backdrop for all China-related risk.”
(Bloomberg News)