Since bottoming at the end of October, the MSCI Emerging Market Index (MXEA) and MSCI Asia Ex-Japan ...
China Bulls Addicted to Stimulus
10/19/2012 11:38 am EST
It's one possible reason why Thursday's truly positive news on the country's GDP caused a tepid reaction at best in the stock markets, writes MoneyShow's Jim Jubak, also of Jubak's Picks.
Everybody (well, everybody long China, anyway) wants to see GDP data as evidence that China’s growth rate has bottomed. I think that conclusion is justified, but given how many traders and investors want to see evidence of a bottom in growth, it’s important to read the numbers very carefully to avoid the worst dangers of wishful thinking.
In the third quarter, China’s economy expanded by 7.4% year-over-year, the National Bureau of Statistics announced yesterday. That was in line with the median estimate from economists surveyed by Bloomberg and down slightly from the 7.6% annual growth rate reported for the second quarter. China’s economy grew at an 8.1% annual rate in the first quarter of 2012.
Outgoing Premier Wen Jiabao said the numbers show that growth had started to stabilize. The government is confident that the economy will achieve this year’s goal of 7.5% annual growth, Wen said in remarks published by Xinhua. Last week, People’s Bank of China Deputy Governor Yi Gang said the economy will grow by 7.8% in 2012.
If you dig a little deeper into the numbers, you can see where the belief that the third quarter might mark a bottom in growth comes from. In short, growth picked up as the quarter progressed.
Industrial production, for example, grew at an annual 9.2% rate in September, up from a three-year low of 8.9% in August. Retail sales grew by 14.2% in September from September 2011. That was the fastest growth since March. Exports exceeded forecasts in September, and in the month money supply grew at the fastest rate in 15 months.
The positive read on September does lower the odds that the People’s Bank will move quickly to cut interest rates again to stimulate the economy. (The bank has been on hold since July.) The central bank has also lowered reserve requirements for China’s banks three times from November to May. The consensus had been that another cut is in the cards soon, but even that is no longer quite so certain.
Which goes some way to explain why China’s stock markets and US-traded ADRs such as Aluminum Corp. of China (ACH) haven’t jumped more today on this GDP news. Aluminum Corp. of China, which was up 24.6% from the September 5 low through the October 17 close, closed up only a few cents on Thursday.
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, may or may not now own positions in any stock mentioned in this post. For a full list of the stocks in the fund as of the end of June see the fund’s portfolio here.
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