Premier Li gets what he wants. Soon after he set 7.5% as the “lower limit” for growth this year and launched a mini-stimulus in late July, China’s economic data started to improve. Industrial production is firmer. Retail sales are ok. And HSBC’s purchasing managers’ survey moved back into expansion. Citi’s “Economic Surprise Index” for China just turned positive for the first time since April. According to Bloomberg, consensus expectations for third quarter growth just inched up from 7.3% to 7.5%, the first upgrade by the consensus since January. Bloomberg’s data also shows China delivering 7.5% for the full year. Citi’s index shows there could be an upside surprise.
Since Li’s speech, the Shanghai stock market has also been doing better, a point we made in the Country Snapshot for China earlier in August. Our investment conclusions remain the same: “The best investment opportunities, however, might be less in China itself than in the global sectors that have been slumping along with China and are tied to a renewal of economic growth. Industrials are a good place to start since the sector also benefits from stronger industrial production in the US and improved prospects in Europe. Within commodities, base metals are also firming and have been outperforming precious metals for some time, a trend that would only be strengthened by an upside surprise in China through the rest of the year.”
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Warren Hatch, PhD, CFA
Portfolio Management and Global Investment Strategy
McAlinden Research Partners