Morgan Stanley
Strategy Forum
Introduction — This week we explore the ‘end of easing’ process. Markets have been focused on related news out of China, and our global economist Joachim Fels puts the latest developments in context with macro themes for 2010. Qing Wang, our China economist, and Jerry Lou, our China equity strategist, discuss implications for China itself. And Gerard Minack, our global equity strategist, looks at how the ‘end of easing’ will affect global equities.
— Greg Peters
Global Economics
March Towards the Exit Begins
This first hike in Chinese banks’ required reserves is not only important for China; it also has global ramifications. Last year was all about exit from the Great Recession; this year will be all about exit from superexpansionary global monetary policies. As I have stated before, we think the monetary exit will be a key theme for markets this year. And the Chinese reserve ratio hike, though a very small step in itself, marks the beginning of this march towards the exit.
The Chinese move fits our global script for this year in three other ways:
First, it is consistent with our “tale of two worlds” theme — the first of the five global economic themes that we have highlighted over the past month (see appendix). It’s a tale of two worlds because we see growth in emerging markets, especially in Asia, by far outperforming the lackluster “BBB recovery” (bumpy, below-par, and boring) in the advanced economies. Asia emerged first from the Great Recession, and so it’s natural for Emerging Asia to be the first to start removing some of the massive monetary stimulus. The Chinese move was only a hike in banks’ reserve requirements, but other countries in the region are likely to start raising interest rates soon.
http://www.scribd.com/doc/25488323?secret_password=1zorjb2fk32b308kheqw
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