China's growth slows to 7.6% in the second quarter with signs that the growth-rate bottom for this cycle could be approaching
07/13/2012 2:45 pm EST
So no negative surprises and a big sigh of relief that is helping propel stock market rallies from Frankfurt to New York. The German DAX stock index is up 2.15% and the Standard & Poor’s 500 stock indeed is up 1.47% as of 12:45 p.m. New York time.
Besides the obvious relief that China’s economy hasn’t fallen off a cliff, today’s rally is founded on an optimistic reading of some numbers below the headlines. You can conclude that signs point to this quarter as a bottom for China’s economy and that efforts to stimulate growth are starting to gain momentum.
So, for example, data on bank lending published yesterday show that new loans from China’s banks climbed to 920 billion yuan in June, up from 793 billion yuan in May and above projections. Last month new bank lending fell below expectations raising fears that banks and borrowers weren’t responding to government directives to lend and borrow more to stimulate the economy. The increase in lending follows on two cuts to benchmark interest rates by the People’ Bank of China.
Similarly, real estate investment showed signs of a potential turn in June. For the first half of 2012 as a whole, real estate investment in China grew at just a 16.6% rate, a huge drop from the 32.9% growth seen in the first half of 2011. But property sales grew at a 6.9% annual rate in June for the first increase in eight months, and mortgage loan growth turned positive as well with June’s numbers taking first half growth to a 0.8% increase from a 2.9% decline in the first five months of the year.
I’ve been writing that China’s growth rate for this cycle is likely to show a bottom in the June or September quarters. I don’t think all this data adds to up a certainty that the June quarter will mark—at 7.6% annual growth—the low point in this cycle for the Chinese economy. It’s possible but far from certain. The bottom could still come in a bit lower and a bit later in the September quarter. To turn this June from a potential bottom to an actual bottom we’ll need more monthly data on loans, industrial production, exports, and real estate sales—and the third quarter GDP numbers that will be forthcoming in early October.
I’d expect that China’s stocks will rally on optimism that the current data marks the bottom of the decline in growth, but that will be a relatively high risk bet until we get confirmation from more numbers. (With European GDP numbers showing a deepening recession there always lurking in the background to restrain any rally in China or the United States.)
I’d say today’s data is cheering but I wouldn’t want to bet the house on it.
Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , may or may not now own positions in any stock mentioned in this post. The fund did not own shares of any stock mentioned in this post as of the end of March. For a full list of the stocks in the fund as of the end of March see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/