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China’s economy can sustain its momentum through June, supported by government stimulus, infrastructure projects and housing development Demand for commodities and construction equipment should be supported by credit growth. The Chinese renminbi will likely further depreciate against the U.S. dollar amid external pressures. The list of problems that China faces is not short. Its economy isn’t growing as fast as it once was, monetary authorities are battling capital flight, debt is mounting and the new U.S. president is talking tough on trade. Here is how I see things shaping up for China in 2017. Stimulus Effects Still Feeding Through the Economy I am more optimistic than most about the direction of the Chinese economy. The consensus view is that China’s economy will lose momentum in the first quarter of this year as the red-hot housing market cools and government stimulus wears off. There is also the risk of tense trade relations with the U.S. That said, in my view China’s economy can continue to grow along its current trajectory in the first half of the year, which is 6.5% according to official government figures. Here’s why: There are enough new investment projects in the pipeline to support economic growth during the first half of 2017. Construction firms, for instance, reported order growth of greater than 30% during the first nine months of 2016. This included a mix of big and small projects, ranging from real estate to infrastructure manufacturing. The good news is projects tend to last two to four years. And by my count, this activity marks the greatest acceleration in new project starts since 2009. This should be supportive for commodity prices and global mining companies through the first half of 2017. There is a lot of skepticism out there right now about private sector capital expenditures, too — but there are early signs cape is recovering, with real interest rates down and some sectors showing obvious capacity shortages. To be sure, I do expect growth to slow in the second half of this year, especially with mortgage credit slowing and home sales having flattened. Pockets of Strength in the Housing Market There is a lot of bearishness about China’s housing sector. Home sales skyrocketed in 2016, as did prices, with approximately US$1.4 trillion in new housing sold. Worried about a property bubble, government authorities are curbing incentives and rolling out buying restrictions as well as stricter lending requirements in some larger markets. This is certainly impacting activity in China’s 30 largest cities, where sales fell 20% year on year in November. The market’s expectation now is that new housing starts will fall, denting gross domestic product growth and demand for commodities such as iron ore, copper and cement. I agree that sales will slow, but not to the degree that most suspect. Outside of the 30 largest cities, sales remain stronger due to affordability and the absence of government purchase restrictions. Immigration into smaller cities from surrounding rural areas will continue, pushing up the urbanization ratio from its current 55% level to nearer 70% to 80% over the next two decades. A lot of urban households want to upgrade their apartments, too. Interest rates also remain low, which should continue to support sales across most markets. Furthermore, we have moved past the horror stories of ghost cities. Inventories continue to shrink nationally and housing stock in the bigger cities is at pre-glut levels. Inventories remain high in many smaller cities, though, so this is still a challenge. Along those lines, new housing starts should continue to grow for the next three to six months, I think. Historically, housing accounts for twice the commodities demand of infrastructure, so I am watching this closely. While cautious, developers appear to be building more again. Inflation Is Back. Three Facts Investors Need to Know
Its official: inflation is back in the US. The consumer price index hit 2.1% at the end of 2016 — the highest level since June 2014. For investors, an upturn in inflation can be a big deal. With that in mind, here are three facts investors need to know. 1. The Scene Is Set for Higher Inflation. The recent inflation figure may have grabbed the headlines, but evidence suggesting higher inflation is coming has been around for a while. Longer term U.S. Treasury yields are often a good barometer, and they first started to move up in mid-2016. Factors lifting inflation include prospects for greater government spending under the new administration, higher housing prices and increased fuel costs. Oil prices have recently been above US$50 a barrel, about double the level of around a year ago when they hit a 13-year low of US$26. Wages are another important factor to keep an eye on. Given that the unemployment rate (4.7% in December 2016) is close to the Federal Reserve’s estimate of full employment, pay increases could become a key source of inflationary pressure. 2. Inflation Can no Longer Be Ignored — Especially if You Rely on Investment Income. Inflation has hardly been a top concern for most investors lately, but that should change in 2017. Preserving purchasing power is particularly important to investors who are in or close to retirement. When drawing retirement income to cover everyday expenses, you want to ensure that you are able to do so in a sustainable way that reflects rising costs for things like food and gas. Of course, how much dedicated inflation protection investors in or near retirement need will vary with their particular financial circumstances. Tolerance for risk is another important consideration. 3. One Simple Idea for Investors Seeking to Preserve Purchasing Power. My focus here is on bonds, though it’s important to acknowledge there are parts of the stock market that have fared well in some past episodes of rising inflation, such as stocks in the health care sector. By the same token, it should also be remembered that no two periods of inflation are the same. Inflationary factors can combine in a variety of ways that have quite different outcomes for stock returns. For instance, financial stocks did relatively well in the period 1999 to 2001, when the unemployment rate fell below 4% and oil prices surged. On the other hand, between 1978 and 1980, oil prices also skyrocketed, while unemployment was mostly in the 6%–7% range and financials lagged. When it comes to bonds, however, there’s good reason to believe that including Treasury Inflation-Protected Securities (TIPS) in an investment mix can be helpful. TIPS are bonds backed by the full faith and credit of the United States government. Unlike standard Treasuries, the value of TIPS generally moves up with rising inflation. Importantly, if there’s negative inflation (known as deflation) over the life of a TIPS bond, the investor is guaranteed to receive the initial amount paid for the bond. Capital Group US Corporate Bond Portfolio Manager David Lee Shares His Outlook for the Market3/21/2017 Could you provide us with a brief review of the market in 2016?
There were three defining events that had significant impacts on the US corporate bond market in 2016: a fear of economic slowdown in China; the UK’s vote to leave the European Union; and US President Donald Trump’s election. While the first of these events caused spread widening in the US credit markets, the other two unexpectedly led to a tightening of Spreads. This was predominantly due to a backdrop of positive US economic growth and accommodative monetary policy globally generating demand for Higher yielding securities during a period of uncertainty. However, Trump’s election and the US Federal Reserve’s (Fed) subsequent Decision to raise short-term interest rates also drove US corporate bond yields higher. This led to a loss of total return. US corporate leverage continues to be high, with many companies releveraging to pre-financial crisis levels. Combining this with decelerating profit growth suggests we may be in the later stages of the credit cycle. Meanwhile, bond issuance has continued to be high. At the same time, merger and acquisition (M&A) activity – while slower than the record levels reached in 2015 – remained very high in 2016. Low interest rates have increased the appeal of using debt to finance M&As, and as such the supply of debt also remains high. Galveston Island is one of the most popular vacation destinations in Texas. This lovely barrier island on the Golf Coast has it all: 32 miles of wonderful white sandy beaches, a port for cruise ships, a beautifully restored historic old town and a distinct Southern charm. Elegant Victorian architecture, endless festivals, and fantastic outdoor adventures will make you want to come back. Here are the best things to do in Galveston, Texas.
»Seawall Urban Park With ten miles of the nation’s longest continuous sidewalk, plenty of beach side entertainment, and a plethora of restaurants, resorts, and beach side attractions, the Seawall Urban Park is one of top Galveston attractions and guaranteed fun for the entire family. Whether visitors like to splash in the water, sunbathe, go for a walk or jog, or people watch, a sunny beachside is the best place to do it. Away from the water, visitors can shop for souvenirs at the beachside shops or relish in a fresh seafood meal. The Galveston Island Historic Pleasure Pier amusement park is packed with rollercoasters that soar over the Gulf of Mexico, carousels to take the little ones on a ride, and other exciting attractions. Weekend Getaways & Attractions: From NYC, Ohio, TX Places to Visit, PA, CA, San Francisco, Seattle, Atlanta, Chicago »Galveston - Port Bolivar Ferry Until 1929, the only link between Galveston Island and the mainland was the skiff, The Tarpon, and later, two barges. The ferry, when it started taking people back and forth in 1929 was toll-free, but it was so popular that a fee had to be imposed. Today, free again, the Galveston-Port Bolivar ferry takes more than eight million travelers between Galveston Island and the Bolivar Peninsula every year. While one vessel operates 24 hours a day, up to six ferries can be added if there is need. The ferry bridges two parts of State Highway 87, the only highway that goes around Galveston Bay. The ferry is the only way for motorists to cross the water between Galveston Island and Bolivar Peninsula. |
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