Chinese equities are ready for lift-off, at least for now.
Thanks to surprisingly good economic data out of Beijing, the biggest China exchange traded fund is on the rise early on Monday. The iShares FTSE China (FXI) ETF was up nearly 2% in the pre-market hours.
The morning rally follows comments from President Xi Jinping over the weekend reiterating the recent message that while China is unlikely to resort to significant new stimulus measures, the government will work to avoid any significant downside risks. The market has heard this before, however, but it seemed to come in louder and clearer on Monday thanks to better trade figures.
Focus now shifts to the usually monthly raft of data. The April money supply data, reported this morning, showed new loans slightly below consensus at 774 billion yuan compared to consensus estimates of 800 billion yuan.
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Click here to download Flash Player now – Youku Tudou, China’s Youtube, was one of the best performing stocks early Monday as economic data keeps China investors happier than usual.
Better-than-expected April trade data, following last week’s uptick in the manufacturing PMI, supports the view that the first quarter was more likely a bottoming out of China’s quarterly growth rate. Both exports and imports rose around 1% on a yearly basis, an improvement from the 6.6% and 11.3% declines, respectively, in March.
Exports by destination show a broad-based recovery, led by shipments to both Europe and the U.S., China’s biggest markets.
As base effects from last year’s cooked trade numbers dissipate, export figures should start looking better providing the U.S. and Europe remain on an even keel and Asian economies continue growing.
Stronger exports have also driven a larger than expected trade surplus of $18.5 billion, up from $7.7 billion in March.
However, the cooling of China’s property market since the start of 2014 poses significant downside risks to growth, Barclays Capital analysts led by Jian Chang said in a note this weekend. Home sales growth has slowed sharply. After barely staying flat over January-February, residential floor space contracted by 5.7% over the last three months ending in March, the worst performance since the second quarter.
Official data for China’s 70 major cities show that average new home price inflation fell to an eight-month low in March. And more cities are reporting price decreases, a trend also seen in 2011. This actually bodes well for investors who see housing as a sore spot for China. For some long term China investors, a controlled cooling of China’s housing market is better than a continual heating up of property values.
“Our baseline scenario is still for a gradual deflating of the (housing) bubble over 2014 and 2015,” says Chang. She sees housing impacting China’s GDP growth however. She lowered their 2015 growth forecast to 7.2% from 7.4% and kept their below-consensus growth forecast for this year at 7.2%.
Other hot China equities this morning include Youku Tudou, up 3.05% in the pre-market and China Mobile, up over 1.12%.
See: China Property Market Enters Autumn Years – China Daily
China In Worse Shape Since 2012 – Bloomberg