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Equities are rallying again. The FTSE 100 came within a whisker of a record high last week. In the US, the S&P 500 and Nasdaq are not far off their highest ever levels, while European and Japanese stocks have performed strongly in the past six months.
This is in spite of worries across the globe about the potentially destabilising repercussions of Brexit in the UK and Europe, the possibility of a Donald Trump presidency in the US and lingering concerns about the health of the Chinese economy in Asia.
Matthew Beesley, head of global equities at Henderson, the fund manager, says this is down to “Tina”, or “there is no alternative” to investing in equities, as bond yields remain at historical lows and offer little in yield or income.
It is Tina, therefore, who seems to be encouraging investors to ignore these worries, as they are potential problems, not actual ones. Brexit might not cause an upheaval in Europe, Donald Trump might not win the US presidential election and China’s economy probably won’t blow up.
China, in particular, has been off the radar for a while as talk of hard Brexit, the plunge in sterling and the US presidential campaign dominate the headlines. But some investors are now warning that the world’s second-largest economy could pose problems for global markets.
Three things are troubling investors the most about China: rapidly expanding credit, falling foreign exchange reserves and concerns that the property market is overheating.
First, credit growth has found its way into the dispatches of the Bank for International Settlements. When the central bank of central banks starts warning about something, then it is definitely time to take note.
In its quarterly report, the BIS said the credit to gross domestic product gap in China was at its highest-ever level — higher than in the US during the subprime bubble in the run-up to the 2007 credit crisis.
With credit growth outpacing GDP growth at a pace never seen before, the BIS worries that something must give. The alarm bells start ringing even louder when you delve into the data, with outstanding loans hitting $28tn.
Some investors say the credit situation in China is an accident waiting to happen.
Second, Chinese foreign exchange reserves have dropped sharply. Some analysts calculate that China has used up a quarter of its reserves to defend its currency, dropping to about $3tn from a peak of $4tn two years ago.
Foreign exchange reserves of $3tn might look pretty robust, but a fall of $1tn over just two years underlines the amount of intervention that might be taking place in the markets to maintain stability on foreign exchanges.
Some investors find it suspicious that the Chinese have stopped reporting changes in foreign exchange reserves of the big commercial banks. “We worry that these reserves have been used to defend the renminbi,” says John Roe, head of multi-asset funds at Legal & General Investment Management, the fund house.
Third, the property markets look shaky. Last month, Wang Jianlin, the property magnate who is China’s second-richest man, warned that the country’s property market was in the “ biggest bubble in history”.
Mr Wang, the owner of Dalian Wanda, the property and entertainment conglomerate, said prices are rising in the big cities but falling in smaller cities, which are saddled with huge inventories of unsold new homes. “I don’t see a good solution to this problem,” he told CNN, the broadcaster.
For now, the Chinese are managing to avoid overheating their economy while keeping growth at a fairly steady level. The stimulus and reflation programme is just about working. But the policymaking balancing act might be difficult to maintain.
Risks such as the election of Mr Trump or deepening concerns over Brexit could push China off the tightrope. Although the Chinese central bank probably has the firepower to avoid a credit crisis, any setbacks to its economy would probably have repercussions on global markets.
Investors who have been piling into stocks this year on the basis of Tina may then be faced with another alternative: a hasty exit from the equity markets.
David Oakley is the FT’s corporate affairs correspondent
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