A Growth Pickup in China? | The Big Conversation | Refinitiv | Summary and Q&A

TL;DR

China's recent economic stimulus measures, including credit expansion and policy easing, could have a significant impact on global markets, particularly in the areas of equities and commodities.

Key Insights

• 😍 Western policy makers face a challenging task in combating high inflation without crushing economic growth, leading to a souring of risk sentiment in global markets and increased uncertainty.
• 🧑‍🏭 China's recent credit expansion and liquidity measures suggest a potential upturn in its economy, which could act as a positive catalyst for the global economy.
• 💇 China's economic stimulus efforts are becoming more coordinated, including support for the property sector, tax cuts, and transfer payments, indicating an intention to stimulate economic growth.
• 🇨🇳 The impact of China's economic stimulus may take time to filter through, but it could potentially make China a safe haven for global investors due to its relative market uncorrelation.

Transcript

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Questions & Answers

Q: How has China's recent credit expansion and liquidity measures impacted its economy?

China's total social financing and credit impulse index have seen significant growth, suggesting the start of a new credit cycle that could impact not only China's domestic economy but also the level of economic activity in the US and Europe.

Q: How is China's economic stimulus being perceived by traders and investors?

Traders are pricing in the policy easing measures, with outperformance of domestic property-related equities and Chinese equities showing relative outperformance compared to US equities.

Q: What sectors or markets are expected to benefit from China's economic stimulus?

The commodities sector, particularly fossil fuels, is expected to benefit as China is the world's largest consumer of most commodities. The energy sector, including coal and oil, could see elevated prices due to increased demand.

Q: How does China's stance on inflation differ from Western policy makers?

China appears less concerned about inflation risks, as its relatively low CPI rate gives the People's Bank of China (PBOC) more leeway to stimulate economic growth without fears of stoking rampant inflation, unlike the Western countries.

Summary & Key Takeaways

• Global equities face a turbulent start to the year with uncertainty around interest rates and inflation in developed markets, leading investors to turn their attention to Asia.

• China's recent improvement in credit expansion and liquidity measures suggests a potential start of a new cycle that may impact both domestic and global equities markets.

• Despite tightening policies in the US and Europe, China's central bank has implemented policy easing measures, including rate cuts and liquidity injections, to stimulate its economy.

• China's economic stimulus efforts, particularly in the property sector, are becoming more coordinated, including tax cuts, transfer payments, and greater support for local governments.