Decade Long Trends Don't End Quietly

FT Alphaville digs into China's reserve situation, giving both the bull and bear perspectives in Of China’s capital outflows and foreign banks. It concludes:

Which, basically, we think means: keep watching those capital outflows. There is real pressure and a secular shift going on here but we can’t yet tell how much of it will last or, and this is the real fear, accelerate.

Maybe what is going on, as JPM’s Zhu argues, is a regime change in its balance of payments composition, one that appears to be largely intentional and policy-driven as the RMB internationalises and China reaches out via OBOR and the like. Perchance, as UBS say, the outflows will moderate. But, obviously, they might not.

Also obvious: what happens here will have implications outside China for global bond flows and the euro.

China's reserve accumulation and trade surplus is comparable with the USA in the 1920s and Japan in the 1980s. A decades long trend is coming to an end, and how many times have they ended quietly? If limited to the financial markets, I would guess almost never.

Value investor Marty Whitman said, “Based on my own personal experience – both as an investor in recent years and an expert witness in years past – rarely do more than three or four variables really count. Everything else is noise.”

China's reserves will not reverse quietly. The trend will continue, or the trend will end, and that will make all the difference for emerging markets and commodities, and for a time, the global financial markets.