Displaying items by tag: China

(New York)

Bloomberg is arguing that the world may be on the verge of a big synchronized recession. In the words of the publication, there is “risk of synchronized slowdown in global growth as Europe wobbles, China sputters and stock markets around the world keep crumbling”. China is finally feeling real heat from the tariffs of the trade war and European growth is slumping. That begs the question of how long the US can remain the fast-growing outlier.

FINSUM: Growth is still good in the US but it does seem to be past peak. Just not as far past peak as in the rest of the world.

(Beijing)

New data out of China suggests all is not well. A gauge of Chinese factory output fell to its lowest level in two years. The news arrives at the same time as the country is in a bear market. The data is particularly important because it shows the China’s economy is under pressure from US tariffs even if the direct effect has not showed up in trade data yet. One Chinese economist for ANZ Bank says “The economic conditions facing China’s private sector is much worse than what the headline figure suggests … Besides an expected reserve requirement ratio cut next January, we expect future supportive policy actions to be measured. The government’s priority is to avoid a financial blow-up”.

FINSUM: We think China is going to once again undertake stimulus measures to support the economy, but this time they will be facing a less accommodative trade environment.

(Shanghai)

If you or your clients own any Chinese focused ETFs, you will have noticed a glaring fact—they have hugely variant returns even when the underlying holdings don’t seem that obviously different. China is a study in how different index weightings and configurations can impact returns. For instance, Chinese stocks as a whole have fallen 21% this year, however the 40 or so Chinese focused ETFs in the US market have ranged from a 5% positive to negative 40% return. Even seemingly broad ETFs, like the iShares Large-Cap ETF, have very varying results, as despite the 21% fall, that ETF only dropped 13%. This is because it has a 50% weighting towards financial stocks, which were largely unscathed.

FINSUM: The key point here is to know what you are buying. Each of the indexes being tracked are quite unique, even if you think you are just buying a broad “China ETF”.

(Beijing)

Beijing made a big proclamation yesterday. The country is in the midst of a brutal bear market—its benchmark Shanghai Composite has fallen 27%—but yesterday the government made a big announcement. It said that it would do “whatever it takes” to stop its falling stock market. A large pledge of support came from Xi Jinping himself, which given his grip on power, means that it can likely be counted on. One analyst thinks the bear market might be nearing its end, saying “Bottoming is a process, and we’re starting to see some evidence of reversals and lows taking shape”.

FINSUM: The big x-factor for China is that a trade war and tariffs hurt them much worse than the West, so it is very hard for us to agree that the market rout there is ending.

(New York)

Monday seemed like it was going to be a good day. Chinese stocks surged mightily, which pushed up US equities ahead of the market opening. However, things quickly turned into a rout, with the Dow and S&P 500 getting wounded badly. Everything from worries over the trade war, to Italy’s budget, to Saudi Arabia are weighing on the market right now. Solid earnings are helping prop the market up, but markets are still down strongly in pre-market trading today.

FINSUM: Many investors are starting to ask themselves if this bull market has finally peaked. We think it is a smart question. That said, as long as economic performance continues strongly, we have a hard time imagining the market will fall too steeply.