Matthews Asia: China; Zero Interest Rates And More

Matthews Asia: China; Zero Interest Rates And More
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Matthews Asia message to shareholders on China; zero interest rates and more.

Dear Valued Investors,

There is a popular notion at the moment that we are in an artificial world. Artificial in the sense that zero interest rates and incredibly easy monetary policies are creating immense distortions in financial markets, and that soon the day of reckoning will come when this fake edifice will come crashing down in a financial crisis. How this will happen is uncertain—an inflationary catastrophe? Or maybe rising interest rates? So pervasive is this idea that some people are arguing for an early rise in rates to get the inevitable pain over with sooner rather than later. I am not convinced that this view of the world’s economies and markets is right.

In fact, in speaking with CEOs at a conference in Hong Kong in March, I found myself thinking just how “normal” things appear. I did not hear many stories from these executives that would fit with a “bubble- like” view of the world. 2014 was not, in the eyes of many, a particularly easy year. By and large, capital expenditure plans that companies are outlining for the coming years do not appear over-optimistic or based on assumptions that they can easily pile on new debt. Rather, they are more cautious and sober. Despite the low interest rates across the world, this is not 1997 revisited—not in general. Now, I realize that we can point to some parts of the region where taking on U.S. dollar debt because of low funding has been increasing. Thailand and Indonesia spring to mind. But I don’t see those excesses shared across all companies in those countries. “We’ve learned our lesson!” one company representative told us, even as he admitted that others had perhaps backtracked. I have no reason to disb