Chinese equities have staged a major comeback over the last week after Beijing mounted a verbal intervention to reverse a drastic sell-off across nearly every sector. The central government’s pledge of support, along with newly released targets for economic growth in 2022, likely indicate a new wave of supportive policy on the way.
Tax cuts and mortgage reform have been the first steps toward bolstering China’s domestic growth, but a deceleration of global trade and the slow-motion meltdown of the country’s real estate and property industry pose significant headwinds. The latter issue is especially concerning as the latest turn in the Evergrande saga has resulted in the company’s unexpected loss of $2 billion in cash. Evergrande and several other heavily indebted real estate developers are now delaying their 2021 financial reports.
Related ETFs & Stocks: iShares MSCI China ETF (MCHI), Global X MSCI China Real Estate ETF (CHIR), Global X MSCI China Industrials ETF (CHII), Global X MSCI China Financials ETF (CHIX), China Evergrande Group (3333.HK)
China’s Aggressive Growth Targets Suggest More Stimulus
As The Wall Street Journal writes, the Chinese government is targeting economic growth of 5.5% this year, setting a relatively high bar for the country’s economy, already facing a litany of challenges at home and abroad. Beijing’s target, therefore, suggests more aggressive stimulus measures will need to be undertaken to reach fulfill their economic plan for the year ahead.
Amid a violent rout of Chinese equities through mid-March, the central government was forced into pledging of support for the economy and markets last week. China’s stocks have experienced a surging rebound since then, and some major players have had their faith in the country’s financial outlook restored by Beijing’s assurances. BlackRock fund managers, for instance, now claim Hong Kong-traded stocks have become “extremely attractive”.
Just how much the economy will actually react to stimulus remains to be seen.
Industrial growth became a larger question mark into this year, driven by weaker construction data. Additionally, infrastructure investment grew by 0.4% in 2021 from the previous year, far below the 13.5% rise in manufacturing investment, China’s official data shows. Nomura economists predict infrastructure investment growth could rebound to about 7% this year, but that would still suggest a larger focus on manufacturing.
A favoring of manufacturing capacity was likely driven by a 2020-2021 export boom from China. The trade surplus hit an all-time high last year as shipments from the world’s second-largest economy grew 30% YoY to a record $3.36 trillion.
However, WSJ also notes that the first couple of months in 2022 marked a bit of a slowdown in that expansion. Exports continue to grow at a double-digit pace of 16.3%, but that is slower than the 20.9% seen in the final month of 2021. Part of that can be chalked up to…
To read the complete Intelligence Briefing, current All-Access clients, SIGN IN All-Access clients receive the full-spectrum of MRP’s research, including daily investment insights and unlimited use of our online research archive. For a free trial of MRP’s All-Access membership, or to save 50% on your first year by signing up now, CLICK HERE
To read the complete Intelligence Briefing, current All-Access clients, SIGN IN
All-Access clients receive the full-spectrum of MRP’s research, including daily investment insights and unlimited use of our online research archive. For a free trial of MRP’s All-Access membership, or to save 50% on your first year by signing up now, CLICK HERE