China Only Grows at Warp Speed
Most countries would do anything for a 6.2% growth rate in their economy, but most countries are not China. The Eastern superpower remains as demanding on its economy as it is on its youthful pianist prodigies, but soft growth has only left it disappointed. That’s what Xi said!
The statistics bureau released the figure yesterday; 6.2% GDP growth in China’s economy since this time last year. That’s not what the doctor ordered, and with stock market growth never straying far from growth in underlying businesses, pile on some trade tension and a Huawei ban and you could be looking at a messy economic forecast. Nothing to see here…
Investors diversified into China don’t have it all against them. The People’s Bank of China controls interest rates and has an encouraging margin of safety to drop them lower if stocks need a lift. Fresh off an incredible 27-year transformation, China may be starting to feel growing pains anyway. More Western investors are tiptoeing in.
Trust has been the biggest stumbling block however for foreign money this year. Some companies on the country’s four exchanges are staying true to the time-honored Chinese tradition of cooking the books, with a “them vs. us” trade spat not helping either. President Xi’s government wields control over some of the biggest Chinese firms, too. Investing gets you no vote on company matters, forcing you to trust your new main business partner, Xi.
Other investors, however, have taken a less bearish tone. They see China as one of the few contrarian havens to find bargain stocks, with most Western investors shying away. They argue that a growing middle class and improving infrastructure are promising fundamentals for companies as long as investors can avoid the bad apples. With the release of yesterday’s data, are the bulls unmoved?