According To SocGen The Problem Is Not "China", It's This | Zero Hedge

According To SocGen The Problem Is Not "China", It's This | Zero Hedge: "Earlier today, when Bank of America said that "panic is building" in the market and asked, rhetorically, "how bad could it get", it listed what it thought are the five core pillars in the bailed out bank's wall of worry:

•  slowing US and global economic growth (US 4Q GDP tracking 1%) 
• collapsing commodity prices (oil prices averaged -42% y/y in 4Q) 
• renewed fears about China (Shanghai Composite -38% since last June) 
• heightened geopolitical tensions (Middle East, North Korea, etc.) 
• the first transition to Fed policy tightening (in a decade). 

We were very surprised that one thing missing, perhaps the most important thing, was fundamentals. And, as SocGen's Andrew Lapthorne conveniently points out, as he has been pounding the table on this issue for years, it is fundamentals - stretched to ridiculous levels - that are finally being appreciated by the market, and the result is the dramatic repricing we have seen.

As Lapthorne says, whilst the focus has been on China, where the CSI 300 fell 10% last week and at time of writing is off another 5%, "China and its accompanying devaluation is just another domino to fall, in what has been a long process of investor realisation that all is not well in the global economy. For us the real problem remains the lack of growth, a problem QE sought to disguise, but did not solve through higher asset prices."



 So having deferred growth for years and years, hoping central bankers would magically conjure it out of thin air eventually, suddenly the market is realizing it the most important component to justify valuations isn't coming, "and now after four long years without any profits growth, the risk is that MSCI World mean-reverts to its original 2011 PE multiple, which would imply a further 50% decline from here. Even decline back to average would imply a 15% drop."

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