China GDP surprise does little to lift markets

China announced higher than expected gross domestic product growth of 6.9% overnight, but markets in the United Kingdom and elsewhere in Europe were unimpressed.

China GDP surprise does little to lift markets

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The FTSE 100 was 6 points down by late morning while Germany’s DAX and France’s CAC 40 were virtually flat.

The better than forecast number has stoked the fires of those who believe China overstates economic performance indicators to better match them to its government set targets.

“Chinese headline GDP growth looks healthy at 6.9% but underlying metrics suggest the real growth rate could be nearer 3% – 4%,” said Russ Mould, investment director at AJ Bell.  “If you look at growth in rail cargo traffic, electricity consumption and demand for loans, three metrics favoured by Prime Minister Li, the picture is not so healthy.”  

“Credit growth still looks promising but freight shipments and electricity demand growth look to be sagging, so the so-called Li Keqiang index does raise a few questions,” Mould continued. “Today’s GDP figures are encouraging but investors with exposure to China should still expect some bumps and lumps along the way.”

According to head of multi asset at Royal London Asset Management Trevor Greetham, the news will be helpful in reining in some of the worst fears investors had.

“The big stock market slide this summer was caused by concerns that China’s surprise currency devaluation was a response to something nasty in the woodshed,” Greetham said. “Today’s numbers go some way to easing those concerns with GDP growth only a fraction of a percentage point below the government’s 7% target as the economy rebalances away from industrial activity and towards consumer spending.”

“The real motivation for de-pegging and devaluing against the US dollar was probably to protect China’s exchange rate from further unwelcome strength against its international trading partners as US interest rates rise,” Greetham continued. “Ironically, the market turbulence the Chinese policy shift triggered has itself caused the Federal Reserve to stay its hand and it may lead to further stimulus in Europe and Asia.

The relatively positive news from China is part of a modest wider recovery in emerging markets, according to Mark Dowding, co-Head of investment grade at BlueBay Asset Management.

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