ANNOUNCEMENT: Expert Investor is now PA Europe. Read more.

China GDP climb does little to reassure investors

China’s second quarter annualised gross domestic product figure of 7% beat expectations of 6.8% but it has done little to increase investor confidence in the world’s most populated country.

China has a stated target of 7% annual GDP growth and the fact that it has reported itself to be hitting exactly that has been greeted with scepticism.  

Among those who are unconvinced is Aviva Investors head of emerging market & Asia Pacific equities Will Ballard, with his firm staying underweight.

“Despite a stronger than expected underlying economy and the recent correction in the domestic equity market, we retain a substantial, long standing underweight position in China,” Ballard said. “As long term investors, we can see the potential China has to offer. However we are mindful of the disconnect between what remain bubble-like valuations of some of the domestic equities and the more attractive valuations found in Chinese companies listed in Hong Kong or offshore.”

Trevor Greetham, head of multi asset at Royal London Asset Management, says the sluggish growth in China is not necessarily bad for markets generally however.

“This is the slowest pace of GDP growth in six years, but from a global stock market point of view China’s slowdown is good news just as Japan’s weakness was good news in the 1990s,” he said. “A steady drop in Chinese demand will see commodity prices drop, keeping inflation low and monetary policy loose elsewhere in the world.”

The benefit of the doubt

“When people come to write the history of this period they will give a bigger role to China,” Greetham added. “The global housing bubble that set the scene for the Global Financial Crisis had its roots in the low interest rates central banks set to offset the deflationary impact of cheap Chinese manufactured goods in the 2000s. China was also recycling its trade surplus aggressively into overseas bond markets, further stimulating their economies.”

Schroders’ emerging markets economist Craig Botham is giving the Chinese government the benefit of the doubt. “While it would be easy to claim this is a classic case of the authorities fudging the numbers, we will resist temptation,” he said. “The breakdown of GDP provided shows the primary and tertiary sectors accelerated whilst manufacturing slowed.

“Our view is that GDP growth built on an equity market bubble is unsustainable, and with a weaker equity market performance likely in Q3, a repeat GDP shock seems unlikely,” Botham added. 

MORE ARTICLES ON

MORE IN

  • Can M&A and buybacks breathe life into UK market?

    Can M&A and buybacks breathe life into UK market?

    Both buybacks and M&A should help realise value in UK shares, boosting prices and giving investors another reason to consider the UK stockmarket Not only does M&A activity appear to be picking up, with a high-profile bid for UK electronics retailer Currys, but the scale of company buybacks continues to accelerate. If it goes well,…

  • Capital Group launches multi-thematic Article 8 funds

    Capital Group launches multi-thematic Article 8 funds

    Capital Group has launched a set of multi-thematic sustainable funds that are available for investors in Europe, writes Christian Mayes. The Capital Group Sustainable Global Opportunities fund (LUX) will invest in global equities, while the Capital Group Sustainable Global Corporate Bond fund (LUX) will target fixed income exposure. The launch also includes a multi-asset offering…

  • Bond funds pull in €29.7bn in January – LSEG

    Bond funds pull in €29.7bn in January – LSEG

    Bond products were the best-selling asset class in January, according to LSEG Lipper’s European Fund Flow report, writes Christian Mayes. The asset class pulled in a net €29.7bn in the month, while Money Market USD grouping was the best-selling Lipper Classification after receiving €11.2bn inflows. Providers of mutual funds pulled in €22.5bn, while passives saw net…

  • Quarter of Article 8 funds at risk of greenwashing – MainStreet Partners

    Quarter of Article 8 funds at risk of greenwashing – MainStreet Partners

    A quarter of all Article 8 funds could be accused of greenwashing based on their sustainability framework and practices, according to MainStreet Partners, writes Christian Mayes The 24% of funds classified as a greenwashing risk by the 2024 ESG Barometer report marks a four percentage point increase from the 20% flagged at the end of…

  • EU green rules could stymie decarbonisation projects – ExxonMobil

    EU green rules could stymie decarbonisation projects – ExxonMobil

    The European Union’s climate regulations may lead to it halting its investments in Europe, ExxonMobil has warned. Speaking to the Financial Times, Karen McKee, president of the product solutions division, said the oil and gas giant had struggled to begin decarbonisation projects in Europe due to the regulatory burden. The result, she added, was that…

  • ICE flags need for Europe to double green investment

    ICE flags need for Europe to double green investment

    Investments to modernise energy and transport must double by the end of the decade to reach 2030 climate targets, the EU has been warned. According to the Institute for Climate Economics (ICE), which has released the European Climate Investment Deficit report, the bloc lacks what it calls a “consistent tool” to ensure monitoring of the…