Much of the recent market turmoil has been blamed on the Chinese economy slowing down dramatically. The following headlines are typical:-
…China fears drain investor confidence
…China manufacturing contracts for second consecutive month
…Slowing Chinese trade seen as main culprit for gloomy outlook
So, what is really happening in China?
Justin Urquhart Stewart from Seven Investment Management delivers his thoughts below:
“As I mentioned last week, a lot of the unreliable Chinese data appears to have been poorly interpreted depending on which kaleidoscope you were looking through. Another example I came across was the figure that Chinese imports of oil were down by 40%. A frightening figure and yes a true one – if you look at it in U.S. Dollars. However perhaps it would be somewhat more reliable and credible if we measured the actual amount of oil in terms of physical delivery in barrels. Looked at this way, in fact their import figures were up by 10%, which would give us a very different picture from -40%. So isn’t it strange that in the face of such positive information, the markets and investors care to ignore the truth!
So what happens next? Well we all know the issues over property and banking issues in China so there is nothing new there, and we are already seeing a significant growth in the Chinese domestic service sector despite seeing the slowing in the industrial manufacturing side. So, what we are likely to see is action by the Beijing authorities to stem the seeping failure of confidence and to attempt to turn around the performance of the economy. They have the policies and they have the financial firepower, and thus I believe that they will succeed.
So therefore such a period of doubt will end and a more positive tone will return. As action is taken and confidence starts to return, so we will see a reversal of some of these moves and especially in our own indices with the heavy weighting in energy and mining. However that may well be after we could have all suffered a bout of sea sickness from the autumn storms in our investment markets.”