No financial meltdown in sight

There will not be a banking crash, as the authorities still have policy capacity to address the problems and ensure stability

The market is always in search of a story and its corresponding trade idea. Unfortunately, so far this year, the United States, eurozone and Japan have been rather uncooperative on this matter, as their respective central banks and economies have stuck to prior trends. As a result, investors have turned to China in the hope of securing this year's story.

Indeed, the economic challenges facing China in 2014 are serious. Its growth rate has fallen from 10.4 percent in 2010 to 7.7 percent in 2013. The most recent economic statistics show that the economy is still slowing. More ominously, the black clouds of debt seem to have thickened inexorably. The high-profile corporate bond default in March, the first in many years, sent a chill through markets in the spring. China's slowdown and financial risks have led to a wave of pessimism and potential opportunity for the market: either a big "China short" is coming, or risk appetite should anticipate a major fillip as authorities have to reflate through credit and/or fiscal stimulus.