China’s V-shaped stockmarket bounce
China's economy contracted sharply in the first three months of 2020, but it has since staged a V-shaped comeback, with the CSI 300 index up more than 15% so far.
China was the first country into the Covid-19 crisis and is now the “first out”, writes Larry Elliott in The Guardian. The world’s second-biggest economy contracted by an annual 6.8% in the first three months of the year, but has since staged a V-shaped comeback. Official statistics show that GDP increased by 4.9% on the year in the third quarter. The International Monetary Fund (IMF) thinks China will grow by 1.9% in 2020, making it the only major economy set to expand.
The debt question
Economists take China’s official growth statistics with a pinch of salt, says The Economist. One camp argues that while the numbers are “overly smooth” they paint a generally accurate picture of what is going on. Sceptics argue that they are more fundamentally misleading. Yet whomever you ask, everyone agrees that the current rebound is real: to see that you only need look at China’s “bustling shopping malls… and its mobbed tourist sites”.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Household borrowing growth has been muted in most advanced economies this year, but not in China, says Mike Bird in The Wall Street Journal. IMF data shows that the country’s household debt to GDP ratio is 31.6% higher than it was a decade ago, by far the biggest jump among the world’s top ten economies. Much of that borrowing goes towards property purchases, sustaining a “nexus between banks, home buyers and real-estate developers” that helps keep activity ticking over. Yet “leaning on households again” will only deepen the economy’s “financial vulnerabilities”.
A rally with legs
China’s CSI 300 index is up more than 15% so far this year, comfortably beating the 5% gain on the US S&P 500. With the virus under control and the economy bouncing sharply it is little surprise that Chinese shares are soaring, says Fidelity’s Tom Stevenson in The Daily Telegraph. The total value of listed Chinese equities recently surpassed $10trn for the first time. Risks include a frothy property sector and a probable resumption in trade spats whoever wins the US election. But a “well-balanced portfolio” can hardly ignore the country.
As elsewhere, China’s rally has been led by a “narrow wedge of tech powerhouses” while value shares have lagged, says Craig Mellow in Barron’s. Bull runs in 2015 and 2017 “ended badly”, but the market is no longer the Wild West. There are stricter rules on leverage and flighty retail investors are increasingly being replaced by institutional investors, who account for “70% of traded equities”. This “rally could have legs”. (Listen to our podcast with Pictet’s Shaniel Ramjee at moneyweek.com/podcast for more on China).
-
Polar Capital: a cheap, leveraged play on technologyPolar Capital has carved out a niche in fund management and is reaping the benefits
-
Vaccines inject billions into Big Pharma – how to profitThe vaccines subsector received a big fillip from Covid, but its potential extends far beyond combating pandemics. Here's what it means for investors
-
Polar Capital: a cheap, leveraged play on technology
Polar Capital has carved out a niche in fund management and is reaping the benefits
-
Vaccines inject billions into Big Pharma – how to profit from the sector
The vaccines subsector received a big fillip from Covid, but its potential extends far beyond combating pandemics. Here's what it means for investors
-
'Investors should keep putting their trust in investment trusts'Interview Peter Walls, manager of the Unicorn Mastertrust fund, analyses investment trusts in a conversation with Andrew Van Sickle
-
Monks Investment Trust is worthy of the spotlightMonks Investment Trust, a global growth trust, sits in the shadow of its stablemate, Scottish Mortgage. But its record warrants attention, says Max King
-
New year, same market forecastsForecasts from banks and brokers are as bullish as ever this year, but there is less conviction about the US, says Cris Sholto Heaton
-
'Expect more policy U-turns from Keir Starmer'Opinion Keir Starmer’s government quickly changes its mind as soon as it runs into any opposition. It isn't hard to work out where the next U-turns will come from
-
Why does Donald Trump want Venezuela's oil?The US has seized control of Venezuelan oil. Why and to what end?
-
Britain heads for disaster – what can be done to fix our economy?Opinion The answers to Britain's woes are simple, but no one’s listening, says Max King
