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Our stock market spiked on Chinese data - how come?

Peter Switzer
19 January 2016

By Peter Switzer

Asian stock markets  went positive following the Chinese economic data, with our S&P/ASX 200 index at last putting on a decent gain with a 44-point (or 0.91%) rise. However, after an early spike, US stock markets lost enthusiasm for buying.

The media was quick to note that the Chinese economic data missed forecasts but as Maxwell Smart might have observed, it was only by “that much”. (Apologies to those not old enough to recall the TV show Get Smart and his “that much” line but it refers to a very small amount!)

So let’s have a quick look at the China data:

• Economic growth was 6.8% annual pace in quarter four, which matched forecasts.

Retail sales rose at a big 11.1% but missed forecasts of 11.3%. In the world of stats, this is not a big miss.

Industrial production was tipped to grow at 6% but came in at 5.9%.

Urban investment rose by 10% but the forecast was 10.2%.

As you can see, it was only slightly disappointing but stock markets have been selling off, largely on the Chinese economy going to hell in a hand basket but it clearly is only a tad below expectations. This is why I have been arguing that the recent stocks sell off has looked over-the-top.

Of course, the media couldn’t help itself and ran hard, with the growth number being the worst since 1990 (or 25 years) but anyone who doesn’t have to sell newspapers and has some economic knowledge knows this much bigger Chinese economy will gradually grow more slowly, partly because it is a bigger economy.

It is also rebalancing its economy to be less dependent on manufacturing and big infrastructure spending to develop services industries, like other first world economies.

This is how CommSec’s Craig James saw the slightly lower economic numbers: “The re-balancing continues. The Chinese economy continues to get bigger and mature and as a result, economic growth rates are gradually easing toward the growth rates that are more common in major industrial nations. 

“So economic growth in 2015 was the slowest in 25 years and next year it will be the slowest in 26 years and so on. In Australia and in the US, ‘good’ economic growth rates are near 3%. In China, economic growth is set to hold near 6.5-7% over the coming year. So China will out-perform for some time to come.”

I think the Asian stock market rebound reflected the belief that these numbers weren’t great but they certainly weren’t as bad as doomsday merchants had been predicting and so the 2016 stocks dumping has been ridiculous.

Another take on the stock market rises has been that these weaker numbers could prompt Beijing to run with more monetary stimulus, which probably has a bit of merit but these moves in recent times have been less successful in exciting the share-buyers compared to the Chinese Government’s huge stimulus program at the start of the GFC.

Interestingly, the International Monetary Fund (IMF) has come out with its 2016 economic forecast, which is 3.4% and is an improvement on 2015’s 3.1% but it has cut back the forecast from 3.5%.

Still, the IMF sees an improving world economy, which also suggests recent stock market nervousness could prove to be excessive.

You have to remember we have seen the worst start to a market-trading year ever, while global growth is expected to rise! I’m betting we’re looking at a great buying opportunity but it could take a few months before my call looks like a good one.

Keep your fingers crossed for the stock market today. I really wish I could offer you a more sophisticated hope than that. Over the next two weeks, I’m hoping that US company earnings surprise on the high side but, once again, it’s a hope but I do believe, at some time this year, lower oil prices actually help company profits.

They have to!

P.S. Oil continues to be a market problem, closing under US$29 a barrel. And it’s caused by Iran now adding to world supply and having a fight with Saudi Arabia. They’re not only increasing supply, they’re actually discounting oil to some European countries, just to annoy Saudi Arabia. 

 

 

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