China's Q4 GDP likely to be at 4-4.5% versus full-year target of 6%: Morgan Stanley

“The growth downside risks have crept up in the near-term. We are also expecting that if the tightening continues on energy intensity related norms, you will probably have China’s gross domestic product (GDP) growth in Q4 running at around 4-4.5 percent, which should be very low considering their target for the full year was 6 percent,” he said.

He is looking at the property sector more closely because the implications of that on China’s growth will be quite meaningful.

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Property sector in China was faced with a double whammy. “They were complying with the deleveraging requirement, at the same time their topline got impacted. And now, we have got this energy intensity related targets for the year-end,” he mentioned.

He believes labour market situation is very important for China. “At the pace at which we are seeing growth slow down since July this year, we do think that the labour market will now give indications that the slowdown has been a bit too aggressive. We saw PBOC coming up with its policy statement where it has indicated that it is going to make sure that growth is stabilising. So, we are already beginning to hear policymakers coming out and taking easing actions. Next set of policy easing action that we are watching is the issuance of local government bonds,” he stated.

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Local government bonds have been soft recently. “As they see growth slowdown, they will have to take up infrastructure spending and fiscal easing. So, we expect both monetary and fiscal easing to come through in Q4 itself and more meaningfully from early next year. You should see growth improvement coming up from early next year for sure, but we are expecting Q4 itself to show some improvement,” Ahya added.

According to him, India’s challenges are not from the perspective of investors wanting to be in India but India should create the environment where investors feel that they can put in an investment in India for the longer-term and it will be a reliable source for them to be depending upon.

“The opportunity has been there and it is probably becoming louder now. The government in India is also taking up the right action. I am constructive that India should be able to increase its market share in global goods exports, we are seeing some early signs of that happening which hasn’t happened for many years,” he explained.

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According to Ahya, success lies more in domestic reforms rather than the external advantages. He further mentioned that commodity prices in India, by and large have not been impacted by slowdown in China’s economy.

“India’s challenge would be the commodity prices continuing to stay high, India is a net commodity importer, particularly of oil. So that is the way India will see some negative impact but it is sort of an indirect impact. I am hopeful that these production cuts that you are seeing in China’s manufacturing sector will not be as aggressive going forward as you get past this quarter-end,” he said.