Macro and Political Outlook April 2019 MacroEagle

STONE MOUNTAIN CAPITAL RESEARCH PERSPECTIVE VOL. 4 

2015 is an eventful year for China, for reasons good and bad. The acute reversal in the mainland stock markets over the summer, along with this month’s administered decline in the Yuan (Renminbi) against USD and other currencies, have unsettled many investors whose expectations for China’s performance were very different. Is there cause for alarm among fixed income investors with broad exposure to Chinese corporate credit?

Ashvin Chotai, Stone Mountain Capital's Senior Advisor in Research, wrote in research perspective Vol. 3 on August 6th 2015, that neither sharp gains nor losses in Chinese equities this year were justified by economic or company fundamentals. This observation is readily confirmed by the hard quantitative assessments of financial and operating efficiency that Rapid Ratings International has conducted on 600 mainland Chinese companies over the last 12 months.

Rapid Ratings conducts an in-depth examination of balance sheets and income statements of companies in a country coverage report. Rapid Ratings then publishes a Financial Health Rating or FHR™ on each company on a scale that runs from zero/worst to 100/best. FHRs carry no geographic biases, in contrast to ratings elsewhere. Every month Rapid Ratings collects ratings and rating changes – “deltas” - within each of 34 countries with the largest number of names in coverage, in order to compare financial health trends.

Ashvin Chotai
Senior Advisor Research
Tel.: +44 7740 823049
Email: ashvin.chotai@stonemountain-capital.com

STONE MOUNTAIN CAPITAL RESEARCH PERSPECTIVE VOL. 2

In 2013, total vehicle demand, including passenger cars and commercial vehicles, in China stood at around 22.2 million units.  This is over a quarter of global vehicle demand and makes China’s vehicle market around 40% larger the US market. China overtook the US to become the largest market for automobiles in 2009.

Foreign automakers, although having to operate via joint ventures, control over 70% of passenger car demand and many now rely heavily on China to support their global growth ambitions. Thus, the significance of developments in China on the global auto industry is not difficult to see.

In the last decade, vehicle demand grew at a compound annual growth rate of over 20%. Major cities in the East Coast were the main growth engines initially but in recent years healthy support has also been coming from the spread of motorization in other provincial capitals and medium size cities.

Since the stimulus fueled boom in 2009 and 2010, growth rates have moderated considerably, but have still remained relatively healthy and so far the transition from high growth rates to more moderate growth rates has been relatively smooth.

Ashvin Chotai
Senior Advisor Research
Tel.: +44 7740 823049
Email: ashvin.chotai@stonemountain-capital.com

STONE MOUNTAIN CAPITAL RESEARCH PERSPECTIVE VOL. 1

Joint Ventures will continue to shape industry structure in the world largest car auto market

China’s auto market and industry structure is renowned for its complexity and especially the existence of a large number of joint ventures between global automakers and China’s State Owned Enterprises (SOEs).  Under the current regulations, foreign automakers’ maximum stake is restricted to 50% and foreign assemblers can have a maximum of two joint ventures per vehicle category. 

The original objective of this policy was to allow controlled entry of foreign automakers into China, with the aim of enabling and encouraging transfer of technology and management know-how to Chinese partners, which are all SOEs.  

It is now over 12 years since China entered the WTO and it is surprising that China still manages to retain such restrictions on foreign ownership of vehicle assembly operations.  There has been little international pressure on this issue, largely because most of the major global automakers have already entered into very long-term joint venture agreements with their partners in China and now appear to be comfortable with the status quo.