More subdued outlook for inflation boosts the prospects for China

Twelve months ago, in the aftermath of the collapse of Lehman Brothers, it looked as though the liquidity crunch could bring down the world's financial system.

Desperate times require desperate measures and global central banks and governments embarked on some strong fiscal stimulus and unorthodox monetary easing in an attempt to avert the Armageddon scenario. Such measures have proved particularly successful in China. With its economy recovering from 6.1% in Q1 to 8.9% in Q3 2009, the fear of deflation has turned to concerns over inflation. Policy adjustments are undoubtedly on the way but the burning question is: ‘When will they do it and how will the market respond?’ China’s economic goal has always been bound up with its desire to mainta...