China in Transition

The 18th National Congress of the Communist Party of China has concluded and a full power transition has been completed for the first time in the party's 91 year history. Market participants may have high expectations on reform or rebalancing, but the reality is that reforms will likely be incremental, with a key focus on stability versus reform. Growth was addressed with the announced GDP goals for 2020 but reform is likely to be confined and the path and timing of economic rebalancing remains unclear. Politically, the new Chinese leaders are not immune from the same pressures as their global counterparts and will likely find themselves under public scrutiny, but there is limited risk of a Tunisia-style revolution. Omens for the Chinese equity market in 2013 look better than they did 12 months ago, but locals will need to come back to the market for outperformance to take hold.