China’s Transition and Its Effect on Asian Emerging Markets

The Chinese economy is still in significant transition,

including adjusting to a diminishing role as the low-cost
manufacturer to the world. China’s government has thus
been aggressively repositioning the economy toward
higher-value-added manufacturing and service-based initiatives
and tackling

Many of the headwinds facing China are structural in nature,
however, and we expect a slower economic trajectory, or a
“new normal,” as nominal lending growth is brought
back below nominal gross domestic product. Moreover, given that
China and other Asian emerging markets are expected to account
for nearly two thirds of incremental global GDP growth, this
transition is occurring when much of the world is looking east
for growth to help fix imbalances, strengthen reserves and pay
down debt.

Spending time in
Asia confirms massive valuation discrepancies. Consider the
following: Many publicly listed Chinese companies are trading
at less than ten times earnings, whereas public comps in