China Stocks Upbeat Even as Rate Rises Haunt World Markets

 

China stocks rose on Wednesday amid better-than-expected economic data even as most global markets plunge over fears that rapidly rising US interest rates may trigger a recession.

China’s CSI 300 index gained 1.3%, Hong Kong’s Hang Seng index rose 1.1%  and the Hang Seng Tech index surged almost 2.4% as the nation’s markets continued to outperform global benchmarks.

The S&P 500 index has fallen almost 10% in the past five days as surging inflation leaves investors bracing for steep interest rate increases. The US Federal Reserve hiked rates by 75 basis points on Wednesday, the largest increase in 28 years.

The Global Dow index is down almost 6% over the past five days and most Asian markets fell on Wednesday with Australia’s S&P/ASX 200 down almost 1.3% and Japan’s Topix off 1.2%. South Korea’s Kospi dropped 1.8%.

Hopes for an economic recovery in China have risen after a spate of largely positive data this week, despite continuing concerns over the risk of Covid lockdowns.

Industrial production data, which measures output from the country’s mines, factories and utilities, rose by 0.7% compared to the same period a year ago, an outcome that confounded analysts, who had expected a decline by a similar margin.

Factory output was buoyed by robust growth in new energy vehicles and solar cell production, as well as food and beverages.

 

Exports Rebound

The boost comes as exports rebound and consumption shows modest signs of improvement.

“The May data suggest that a post-lockdown recovery got underway across most parts of the economy last month,” Mark Williams, the chief Asia economist at Capital Economics, said. “It is likely to have progressed further in June.”

Economists said the lifting of some production restrictions in China, such as using white lists to allow closed-loop operations in hard-hit Covid-19 areas, had stabilised production.

“Improvements in domestic logistics chains have also helped to ease supply chain bottlenecks,” said Jing Liu, chief China economist at HSBC.

 

ALSO SEE: Goldman Says China Stocks at Bottom, Sees 14% Upside Ahead

 

Retail Improvement

Retail sales in China declined for a third straight month in May but posted a slight improvement on April’s reading. Sales fell 6.7%, compared with 11.1% in April.

“Demand may recover after the Covid-19 outbreak in China is brought under control,” said Huang Wenjing, an economist at CICC.

But some analysts are sceptical about the long-term viability of China’s economic recovery.

“We expect activity data to improve further in June on the lifting of lockdowns in Shanghai and some other cities,” said Ting Lu, the economist with Nomura.

“[But] we believe some fundamentals might be worse than the official data suggest, as indicated by negative output by volume of major products such as power, cement, crude steel, autos and smartphones.”

Liu at HSBC also warned that China’s economic recovery was not yet out of the coronavirus woods.

“The recent resurgence in infections in both Shanghai and Beijing means that the risk of an economic relapse remains,” she added.

 

Goldman Upbeat on China Stocks

China stocks have bottomed out after a year-long correction and are poised to gain up to 14% over the next 12 months, Goldman Sachs said in a note on Monday.

The driver of the upside potential is China’s policy easing, which comes exactly as much of the rest of the world is tightening, said analysts led by Hong Kong-based Kinger Lau.

We “like the tactical case, especially in the run-up to the Party Congress, ahead of which the stock market has tended to trade well historically,’’ he said.  “Monetary, fiscal, property, regulation and Covid’’ policies have all seen loosening, he added.

 

• George Russell

 

 

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