China: All eyes on Communist Party Congress - BBH

The 19th Chinese Communist Party Congress begins Wednesday and for political theater, it may be more nuanced for investors' palate rather than the drama that many would find more interesting, explains the research team at BBH.  

Key Quotes

“It seems widely recognized as a showcase for President Xi's power, which as a recognized "core leader" may be the most since Deng Xiaoping.   For investment opportunities, the Congress may also be light.”  

“However, the impact could be indirect.  If one believes the not very whispered whispers that Chinese officials have ordered and engineered great stability ahead of the Congress, then some increase in volatility should be expected.  Chinese stocks have lagged most other markets, but recent gains Shanghai have lifted the Composite to its best levels since March 2016.  The Shanghai Composite has risen in four of the past five quarters.  The 4%+ gain in Q3 was the largest since Q4 15, during the bubble.”  

“The week after the Party Congress ends, China's government is expected to sell dollar bonds for the first time in more than a decade.  The small amount ($2 bln) that is expected to be raised is a little importance to China, and will likely be priced tightly, helped by novelty and scarcity considerations.  It may provide a benchmark for other dollar borrowers, like corporates.  What is striking is that this offering, which could be the first of many, seems to be another testament to the resilience of the dollar standard.”  

“China's offering is emblematic of developing countries demand.  According to figures in the Wall Street Journal, private and public sector dollar borrowings from emerging market countries this year alone is in excess of $500 bln, a new record.  The BIS estimates that total dollar debt owed by non-US government and businesses at $10.7 trillion, of which $3.7 trillion is accounted for by emerging markets.”