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China GDP growth of 9.8% socks stocks on inflation, tightening fears
01/20/2011 12:30 pm EST
For the fourth quarter of 2010 GDP growth in China accelerated to 9.8%. That was higher than the 9.6% annual growth recorded in the third quarter and above the 9.4% consensus estimate from economists surveyed by Bloomberg. The fourth quarter’s results took growth for all of 2010 to 10.3%. That was up from 9.2% growth in 2009 and the fastest growth in three years.
Inflation in December dipped to an annual rate of 4.6% from 5.1% in November. That figure had been reported in China yesterday as a “leak” from “official sources. Very few economists expect that downward trend to last with Citigroup and Credit Suisse both pegging 6% as an inflation peak in the first half of 2011.
If you’re a glass is half full type, I suppose you can see this as positive news. At 9.8% economic growth is lower than the 10.2% that was being bandied about earlier this week. And 4.6% inflation is lower than 5.1%. But stocks in China got their bump from the 4.6% inflation news yesterday on the leak and today Asian markets are suffering a shortage of optimists. Most investors believe that the news today raises the odds that Beijing will increase interest rates in order to slow the economy in 2011. A growing consensus is looking for another one percentage point increase in benchmark interest rates in 2011. (I think that’s extremely likely—but I don’t think that’s enough to get inflation under control.)
The Shanghai Composite dropped 2.9% today to close at a four-month low. Hong Kong’s Hang Seng Index was down 1.7%. The MSCI Asia Pacific Index lost 1.3%.
In Europe shares of companies with big exposure to China took big hits. For example, Volkswagen, the largest European carmaker in China, was down 5% as of 11 a.m. in Frankfurt.
Digging beneath the top line numbers shows a Chinese economy that just won’t slow down. Urban fixed-asset investment—real estate development—rose by 24.5% in 2010. Industrial production climbed 13.5%. Producer prices, an indicator of future inflation in consumer prices, climbed at a 5.9% annual rate.
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