Economic Outlook for China

By Naomi Rovnick

LONDON (Reuters) – China still faces a challenging economic situation, and it is hard to maintain a positive outlook for the world's second-biggest economy, according to Sonja Laud, Chief Investment Officer at Legal & General (LON:LGEN) Investment Management.

China plans to implement an "appropriately loose" monetary policy in the coming year, marking the first easing in approximately 14 years. This will be coupled with a more proactive fiscal policy aimed at stimulating economic growth, as reported by the Politburo on Monday.

Laud stated, "You can't really stimulate away the excess in real estate that has been built over decades." She emphasized that the domestic consumer cannot offset the ongoing weakness in the real estate sector, while also referencing potential U.S. tariffs as additional challenges. "We're not too positive on this," she added.

China's economy has struggled throughout the year, prompting policymakers to take action in September. The central bank announced its most aggressive monetary easing since the pandemic, which included cutting interest rates and injecting 1 trillion yuan ($140 billion) into the financial system, among other measures.

The recent election of Donald Trump poses further challenges, particularly with his proposal for an additional 10% tariff on imports from China.

In a separate comment, Laud noted that UK gilts present good value, especially since the UK budget has been absorbed by the markets and the Bank of England is likely to continue lowering interest rates. Legal & General Investment Management oversees over $1 trillion in assets.

This year, Britain's government bond market has lagged behind its peers, with yields on 10-year gilts rising roughly 75 basis points. In contrast, U.S. yields have increased by 29 basis points, and German bonds have only risen 7 basis points.

Regarding Europe, Laud pointed out the difficulty in positioning investments amid escalating political uncertainty in France and Germany, the two largest economies in the eurozone. Germany is anticipated to hold a snap election in February, while France is experiencing its second political crisis within six months.

When discussing the United States, Laud highlighted the inflationary impact of potential U.S. tariffs, suggesting that markets may reconsider their expectations for Federal Reserve rate cuts next year.