The big news yesterday was China’s industrial production, which came in stronger than expected, rising 7% year on year in February, beating the anticipated 5% and making it the fastest pace of growth in two years. Notably, the markets are very negative towards China; hence, any ongoing signs of improvement are likely to see a dramatic move in some related areas of the market. Even retail sales came in better than expected yesterday, printing 5.5%, above economists’ forecasts of 5.2%, with online sales up an impressive +14.4% to start the year. With fixed asset investment up 4.2%, more than the expected 3.2%, it was a rare good day for the Chinese economic outlook.
However, the gorilla in the room is still property for the world’s second-largest economy, and real estate investment fell another 9%. The average property price across 70 cities fell by 4.5% in February, compounding the 3.5% drop in January. China’s growth remains solid despite the divergences, and when we do see targeted stimulus eventually stabilising/lifting their property market, the sentiment worm has plenty of room to turn dramatically. Further stimulus is likely required to lift consumer sentiment, which is highly correlated to property, but Beijing has made it clear that this is firmly on the agenda.
- The weak Chinese property market remains the key to a number of markets, with iron ore front and centre after its recent 30% correction.
Chinese stocks have already bounced over 15% from their 2024 low following Beijing’s various measures to support the beleaguered index. We wouldn’t be fighting Xi Jinping et al., and with fund managers so negative on their market, as mentioned previously, there’s plenty of scope for a squeeze higher. In the short term, the “easy money” is in the rear-view mirror for the bulls, but we still like the risk/reward around current levels, although some consolidation looks close at hand.
This morning, we updated our outlook for four China-facing stocks after yesterday’s moves, which had some members questioning what caused the strength in some companies.
