Asia: IMF's China growth upgrade outweighs Goldman downgrade

Asian stock markets have delivered a mixed performance overnight, though China and Hong Kong were stronger after a positive assessment from the International Monetary Fund (IMF) offset an economic growth downgrade from Goldman Sachs.

The investment bank cut its outlook for China’s gross domestic product in 2015 from 7.6%.to 7.1% and its inflation outlook to just over 2%.

Goldman Sachs analysts kept their 2014 forecast steady at 7.3%, but said they saw “a likely reduction in the government’s growth target next year reducing the pressure for aggressive policy easing” after taking into account recent research on potential growth and the output gap, or spare capacity, across Asia.

“In a best-reasonable-case scenario, China’s potential growth would gradually slow to just over 7% over the next five years,” the analysts added, forecasting a slide to 6.7% GDP growth by 2017.

Chinese GDP rose 7.5% in the second quarter compared to a year earlier, meeting the government’s current growth target, and a report from the IMF said it expected China's GDP to be “well above” 7% in 2015.

The IMF is currently forecasting 7.4% growth for 2014, slightly below the government's official target.

"We expect they have many tools to maintain the growth rate well above 7% next year," said Changyong Rhee, director of the Asia and Pacific department at the IMF.

Staying on China, Deutsche Bank pointed out a potential corporate default story in China, with giant steel transporter Anhui Wanjiang Logistics admitting 2bn yuan ($330m) of its 16.7 yuan loans were overdue and that its chairman had been detained by police.

But on the wider worries around defaults, ratings agency S&P added that widespread defaults by local government financing vehicles are unlikely in the next year or so as they have sufficient resources to absorb weaker property related revenue, which accounted for about 20% of local government revenues in 2013.

Japan reopened limply after national holidays as negative sentiment from US and Europe crept east.

Electronics manufacturing giant Toshiba said it planned to invest $1bn in Southeast Asia over the next five years to expand its business in the region, with the aim of doubling sales in the region to $7bn over that time.

Looking forward, the ASEAN (Association of Southeast Asian Nations) Economic Community (AEC) – whose primary focus is a single market for trade across the ASEAN region – comes into force in 2015 and is expected to have a positive effect on economic activity and market growth in the region, according to SooHai Lim, investment manager at Baring Asset Management.

“The ASEAN market’s cyclical recovery from the 2013 and early 2014 volatility has had a tangible impact on investor sentiment across the region, with momentum fully supported by the start of the AEC in 2015.”

He believes that, now that macro headwinds are past their worst and corporate earnings are expected to re-accelerate, the AEC will form a bloc of 600m consumers which will help the ASEAN region "deliver superior risk-adjusted returns for investors".