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Markets Spotlight: When new technology means slower growth

Our round-up of this week’s best comment and analysis from the Financial Times looks at the deeper reasons behind slower growth, what look like overheated property markets in Australia and Canada and looks at China’s shadow banking system.

The selection is taken from our Markets Insight and Smart Money columns, written by industry contributors and FT commentators.

The FT’s John Authers presents the research done by JP Smith at EcStrat consultancy that divides investment markets into nine different governance regimes, an investment taxonomy that “actually makes sense”, according to our senior investment commentator.

“With passive investing increasingly displacing attempts at stockpicking, asset allocation grows ever more important. This schema is very promising, and could well allow asset allocators to move their capital far more effectively.”

David Eiswert, global focused growth equity strategy at T Rowe Price, argues that investors have to get used to the apparent contradiction of technological progress and slower economic growth.

“Automation is leading to a condition of ‘deflationary progress’. Investors and voters will have to come to terms with the contradiction of progress and lower growth.”

The FT’s Henny Sender says that as the Chinese stock market shows some signs of being unsettled by regulators’ declared ambitions to clean up the banking system and slow the growth of credit, international private equity companies are moving their capital towards China.

“But for now, the picture for overseas private equity firms in China has improved. Indeed, should liquidity tighten further, the hoard of cash built up by the firms is likely to be in even higher demand.”

China’s decision to tighten capital controls has sharply reduced global use of the renminbi and has shaken the currency’s path to greater internationalisation, says the FT’s Jennifer Hughes.

“The fallout from China’s moves were clear by February, when Standard Chartered’s renminbi globalisation index sank to a three-year low and clocked its worst monthly drop of just over 6 per cent. And Hong Kong data show deposits in the city have halved since their Rmb1tn ($145bn) 2014 peak.”

James Kynge, the FT’s emerging markets editor, argues that there are signals of an upsurge in Beijing’s will to discipline its unruly financial system and rein in a huge credit bubble.

“So vast is the netherworld of shadow finance and so prevalent is the chicanery that the regulator is targeting that any uncompromising effort to clean it up would shake China’s financial architecture to its timbers.”

The FT’s John Plender says that even though Canada and Australia have not really suffered during the financial crisis, it is possible that they may have a delayed reaction thanks to overheated property markets in some of their biggest cities.

“The authorities in both countries tried to damp mortgage lending and tighten borrowing conditions through higher down payment requirements and/or tougher loan-to-value ratios — standard weapons from the tool kit of so-called macro-prudential policy.”