Deltec's Think About This Big Trouble in Little China?

Think About This INVESTMENT RESEARCH EXECUTIVE SUMMARY • China's latest wave of stimulus revives the old model for growth: debt-fueled fixed asset investment. • This is unsustainable in the long term, but lifts activity in the short term, encouraging stock market speculation. • This speculation can go further, but it is dangerous. In 2015 the Chinese stock markets doubled before halving in no time at all - with the same causality as today: temporary stimulus and hyped markets, bought using margin debt. • Be invested, but be nimble. Big Trouble in Little China? China has engineered yet another wave of stimulus, its fourth since the financial crisis. This wave is a product of cuts to overnight interest rates, some reduction in the Reserve Ratio Requirement and in directed lending (Chinese banks are state controlled and issue loans as instructed). This stimulus is visible in measures of the ‘credit impulse’, an aggregation of total social financing and other forms of credit creation. This measure is currently expanding nearly 30% year over year. CHINA CREDIT IMPULSE 45% 40% 35% 30% 25% 20% 15% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 China Credit Impulse Sources: Bloomberg, Deltec www.deltecbank.com Deltec Bank & Trust Limited

Deltec's Think About This Big Trouble in Little China? | Page 2