China growth fears (continued)
Yesterday’s Australian Financial Review highlighted comments from Mark Williams, Shell’s global downstream director.
“The global economy seems weaker to me than the numbers indicate”, said Mr Williams. “I still expected more suction out of China than we’re getting. I’m just a bit uneasy with what we are seeing in terms of fuel demand and chemical demand”.
Meanwhile Macquarie Equities has brought to light, via net working capital and net debt/equity ratios, an elevated credit risk for the Chinese listed capital goods, materials, utilities and retail sectors. In each case, the cash conversion cycle, the lifeblood of any business, is getting considerably longer. Net debt to equity and receivable days are in a strong uptrend. The Chinese Steel and Cement Sectors, for example, are particularly exposed with a profit squeeze from downward pressure on end product prices. Capacity additions have been aggressive and utilisation rates are deteriorating.
We would expect the historically low non-performing loans from China’s banks to move higher over the foreseeable future.
Chief Executive Officer of Montgomery Investment Management, David Buckland has over 30 years of industry experience. David is a deeply knowledgeable and highly experienced financial services executive. Prior to joining Montgomery in 2012, David was CEO and Executive Director of Hunter Hall for 11 years, as well as a Director at JP Morgan in Sydney and London for eight years.
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