Bad retail sales data in China has a silver lining for investors



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China’s zero tolerance policy for Covid-19 has hurt the economy.

Kevin Frayer / Getty Images

China on Wednesday released a series of weak economic data, further highlighting its economic slowdown. But this bad news could signal a reprieve for Chinese stocks, as it adds to the arguments for policymakers to increase stimulus measures.

Figures for November underscored the sluggishness of the world’s second-largest economy as it faces a collapse in the real estate market and lockdowns resulting from Beijing’s zero-tolerance policy for Covid-19. Economists expected the Chinese economy to experience difficult times. And like Barron reported, they expect policymakers to continue intervening to prevent the slowdown from spiraling out of control as the 20e Party Congress next year, when Xi Jinping is expected to serve a third term.

Among the weak data, the area that is gaining the most attention from investors is retail sales. The numbers are seen as an indicator of Chinese consumer health and sentiment as debt problems from developers like Evergrande Group and Kaisa disrupt the real estate market. Retail sales in November rose 3.9% from 4.9% the month before, a figure spurred by seasonal factors. Analysts’ consensus was expecting growth closer to 4.7%.

For some, this suggests that the Chinese consumer is not recovering from the pandemic. But Derek Scissors, a longtime China observer and senior researcher at the American Enterprise Institute, sees a positive that Beijing appears to be moving away from its usual practice of smoothing its data to avoid reporting declines. brutal.

“These are the lowest growth figures we’ve seen, except in the midst of a crisis,” says Scissors. “They are more honest [about the data]. Anytime they’re willing to be more transparent, that’s a positive.

The report is perhaps the latest indication that Beijing is moving away from its focus on economic growth and is more concerned with parameters such as creating jobs and building a more equal society. This would be in line with his latest emphasis on common prosperity in an effort to address some of the inequalities created during the past decade of hypergrowth.

Stability, however, is always a central concern, a major theme emerging from the annual Central Economic Work conference, which chops up the economic agenda for next year. And that could mean Chinese markets are getting some support, even as geopolitical issues, from write-offs to U.S. investment bans, continue to cloud the outlook for U.S. investors. the


iShares MSCI China

ETF (ticker: MCHI) closed 2.4% lower at $ 62.66 on Wednesday, marking a loss of just over 17% over the past 12 months.

Although Chinese central bankers have been more restrained than their global counterparts in stimulating the pandemic, the positions could be reversed. Just as the Federal Reserve prepares to cut more quickly on bond purchases it has used to keep the economy on track and signals that rate hikes are being considered, policymakers in Beijing are adopting a more note. accommodating. They are opening the stimulus valve very slightly to cushion China’s economic slowdown.

Some of the measures Beijing has already taken include lowering the reserve requirement ratio for banks, freeing up money for loans. And in a note to customers,


Goldman Sachs

The strategists said various officials have indicated the need for increased political support to stabilize the housing sector. The bank noted what policymakers have done, but said more is needed, especially in terms of housing, to secure developer funding and help real estate transaction activity recover to meet the target. Goldman’s 4.8% economic growth in 2022.

Craig Botham, Chinese chief economist for Pantheon Macro, said by email that given the political sensitivity of next year, policymakers will need to ensure the economy is reasonably strong in time for the Party Congress. in autumn. Still, he doesn’t expect any further significant monetary easing until the Lunar New Year holiday in early February.

Timing is important for investors, who increasingly seek to position themselves in line with developments in Beijing policy, including the recent emphasis on common prosperity that seeks to expand consumption growth in the world. countries and focus more on building the middle class.

Some value managers are already on the hunt for bargains amid the steep drop in Chinese stocks. Ginny Chong, head of Chinese equities for Mondrian, favors companies that respond to this broader growth over old consumer favorites like games, luxury goods and housing. Chong is now overweight China, focusing on companies like


Autohome

(2518.HongKong), a website for car buyers in China, and home appliance maker


Electric green

(000651.China).

Write to Reshma Kapadia at [email protected]


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