China may see growth of 5% in'16: analysts

Analysts at Prudential Investments expect China's economy to grow by about 5 percent in 2016, in the new paradigm of lower-than-expected interest rates and growth.

"We will have slower growth on a global basis, and that includes China," Edward Keon, managing director and portfolio manager for the Quantitative Management Associates unit of Prudential Investments, a part of US insurer Prudential Financial Inc, said at a 2016 economic outlook conference on Tuesday in New York.

China's government wants the country's gross domestic product to expand at about 6.5 percent. Even if the mainland's growth comes in closer to what the Prudential team is predicting, Keon said that the wheels aren't about to come off the economy of developed nations.

"The world will move forward next year, just at a slower pace than many expect," he said. Keon is concerned about the risk of a debt overhang in China, but believes the government will be able to successfully manage the issue.

As for the US, interest rates, inflation and economic growth are likely to remain below the typical levels of the past 70 years, according to the investment management team at Prudential.

Demographics are one of the major reasons for the emergence of this trend. In the US, aging baby boomers will probably alter the labor market, healthcare and wealth management sectors for years, Prudential said.

"It's not just the number of older people that are growing, it's also that income and wealth is growing the most among older people," Keon said.

Prudential said stocks are likely to produce the highest returns next year while real estate may help investors boost returns.

Peter Hayes, managing director and global head of investment research at Prudential Real Estate Investors, said state-owned enterprises (SOEs) and high net-worth individuals in China will continue to seek real estate opportunities in the US.

"They are seeking diversity, and a US real estate investment offers that along with a chance at getting a higher rate of return," Hayes said.

Hayes said Chinese real estate investors may begin to stray from focusing on trophy assets in New York and San Francisco.

"I think that the technology sector in areas like Seattle, Austin, Texas, and Denver could begin to see more (Chinese) investment," he added.

If you are an investor, the Prudential team believes equities are the best place for your money in 2016. Keon predicts stocks will return about 6 percent. The low and lower forecast that applies to interest rates and growth will also extend to returns.

"A return of 6 percent will be good," noted Michael Lillard, managing director and chief investment officer of Prudential Fixed Income. Lillard believes that Mexico, where government debt is paying about 6 percent, represents a potential investment opportunity for fixed-income investors.

Commodity markets are unlikely to soar in 2016, the Prudential team said. Oil prices are not expected to increase much, and demand for iron ore, copper and other minerals is expected to remain near current levels as growth continues to moderate in China and in other emerging markets, they said.

paulwelitzkin@chinadailyusa.com