It is fanciful to think that China has become so much of a driver that it will be unimpeded by a US downturn but it is unlikely. A China stockmarket crash is long overdue but then what will happen? Where should investors be positioning themselves?
Two themes come to mind: Africa and emerging market high yield, which in some cases will be one and the same thing. “Out of the 53 countries [in Africa], only a few are having real political problems… [there should be] a better appreciation and a better perception of where Africa is today,” says Jean-Louis Ekra, president of the African Export-Import Bank.
In African finance there are developments on every corner. Ghana has become the first sub-Saharan country (excluding South Africa) to issue a Eurobond with the launch of its 10-year, $750m (€514m) September deal, while other nations set to follow in its footsteps include Kenya, Zambia and Senegal.
Big infrastructure projects are back in vogue and there are financiers willing to underwrite them, spurred on by China’s initiatives in this area. Trade finance is beginning to recover from the blow that came with the dismantling of the old commodity boards.
Many of the investment plays in Africa will still be in the sovereign area, however, especially if proposals for joint sovereign bonds ever come to fruition.
In the wider context of the emerging markets, high yield will be such an attractive post-crisis play that people are talking about it as a new asset class and indeed a new safe haven.
This will unfold as countries such as China really push the financial instruments and deregulation that can divert their massive savings into domestic investment. It is the imbalance between the two that has fired China’s stock market boom. In future, a burgeoning domestic and offshore corporate bond market will go some way to plug the gap.
