Further easing needed in China, says Deng

Baring Asset Management’s $2.7bn (£1.7bn) Hong Kong China manager Agnes Deng has said China fund needs to continue to cut its interest rates to maintain growth.

Ms Deng’s comments come after the world’s second-largest economy has cut interest rates twice since the start of June – something it had not done since 2008.

The People’s Bank of China (PBoC) has not only cut interest rates but has also reduced the reserve ratio requirement for banks - the minimum proportion of their balance sheets they are required to hold in reserves.

Barings’ Ms Deng said China embarked on a cycle of credit tightening in 2010 to cool growth and two years down the line, with the economy slowing, the PBoC has started to “cut aggressively”.

“These cuts are aimed at pumping liquidity into the system and to lower interest rates for loans to business which should in turn help the overall economy to stabilise,” she said.

“However, if you have a headache it takes 20 minutes or so for the aspirin to work, and we are probably in that area now. That doesn’t mean I think the government has done enough though.

“Actually, the government should do more because of the weakness in the export market and fixed asset investment.”

Ms Deng added “external chaos” in Europe and slowing in the US had affected the market in China as they had prompted investors to flee riskier assets.

In her portfolio, Ms Deng said she has recently been adding to sectors such as industrials and materials on the view China will embrace fixed asset investment in areas like infrastructure to help boost growth.

“If they want to maintain 8 per cent or above in terms of GDP growth they can’t allow [growth in] fixed asset investment to go below 20 per cent or so when exports are so weak,” she said.