“While there have been defaults by Chinese companies in international debt markets, the visibility of [Chaori Solar] would make it a potential focus point for domestic investors.”
The manager says the repercussions “can be viewed positively or negatively”.
While a negative view would forecast an eventual “systemic, liquidity-led crisis”, Mr Williams is more confident that the default will be viewed “as acknowledgement of the risks which must accompany returns, and as education that there is not an implicit government guarantee on any borrowing”.
Nick Reeve is deputy news editor at Investment Adviser
Expert view
Jason Pidcock, manager of the Newton Asian Income fund, says: “It could be that the US ends down a bit and Asia up. I would not expect the difference to be dramatic though: if the US falls by 10-15 per cent it would be difficult for Asia to go up, but if the US ends the year down 5 per cent it would be quite possible that Asia ends the year up – although that is not a forecast.”
Mark Williams, co-manager of the Liontrust Asia Income fund, is wary of major headwinds to China. He says: “While we think that the aggregate amount of debt should be manageable from here, significant reform will be needed to alter the inefficient allocation of capital that has driven growth.”
