Is China finally taking off?

• From a stock market perspective, China has been a disappointment for investors. The Shanghai market is going in the wrong direction. But maybe it is time for some bottom fishing?
• Yesterday, China announced another stimulus package as the government is stressed by the weak performance of the economy. If it fails to deliver, the likelihood of civil unrest would increase

We admire China's evolution from a developing country to the world's number two in terms of total GDP. But even the official, probably highly inflated, official GDP figures are in a steady downward trend.

(All macro charts from TradingEconimics.com)

Demographics are challenging, and the transition from an export-driven manufacturing economy to one based on domestic consumption is also challenging.

China has also made some bad decisions in recent years.

- Some of the big companies, like Alibaba, got too big. So, the state went after the entrepreneurs because they were seen as a threat to the current government. Chinese politics has not been friendly to entrepreneurs in recent years. That may be changing now.

- The policy around Covid has cost China a few years of growth.

- Less democracy and more geopolitical conflict, with China continuing to support Russia, for example, is having a chilling effect of Western companies’ willingness to trade with China. It may be a judgement that the domestic market and countries outside the West should be enough, but that seems to be another misjudgment.

- China has huge problems in the property market, where many developers have gone bankrupt and the housing market, especially apartments, is not working.

As Chinese statistics seem to be massaged in different ways, it is challenging to understand what is really going on in the country. What we can see is that even the official statistics, such as GDP, are in negative trends.

This affects the total monetary base, shown above as M1.

If you look at the chart above, credit and lending may be the biggest problem internally in China as it continues to decline.

So, all the statistics are saying the same thing - China is losing momentum. That's why the Chinese government keeps trying to stimulate more and more. Yesterday, China's central bank unveiled a major package of measures to lower borrowing costs and allow banks to lend more.

The new initiative to support the market was well received by the Chinese stock market. On the daily chart, Shanghai is breaking out of its long downtrend.

It will also have a knock-on effect on the global market as the increased liquidity in China spills over its borders. China is usually the first to provide stimulus. For us, this confirms our view that governments and central banks will continue to stimulate the global economy. We just have to watch out for the bumps in the road.

A sustained rally in China can affect a wide range of markets. Globally, commodities such as copper, uranium, etc. will be the main beneficiaries.

Fast-food chain Yum jumped 7% yesterday on hopes of better consumer sentiment.

The U.S. market continues to be held back, waiting to see how this all plays out.

NVDA is trading in a wedge. Every time it tests the resistance, the resistance gets weaker. Usually a resolution will be in the same direction as the trend, which in this case is to the upside. But you can never take anything for granted.

However, keep an eye on the US dollar as it is approaching important support. A reversal in the USD could have a negative impact on the equity market.

Happy trading!

?

?

Disclaimer:

The information in this presentation is based on what the publisher, Carlsquare, believes to be reliable sources. However, we cannot guarantee its content. Nothing in the presentation should be construed as a recommendation or solicitation to invest in any financial instrument, option, or the like. Opinions and conclusions expressed in the presentation are for the recipient's use only. The contents may not be copied, reproduced, quoted, or distributed to anyone else. Carlsquare shall not be liable for any loss arising from any decision taken based on the information contained in this presentation. Past performance should not be taken as an indication of future results. Changes in foreign exchange rates may affect the value, price or income of an investment made abroad or in a foreign currency.

The analysis is not directed at U.S. Persons (as that term is defined in Regulation S under the United States Securities Act and interpreted in the United States Investment Companies Act of 1940), nor may it be distributed to such persons. The analysis is not intended for natural or legal persons where the distribution of the analysis to such persons would involve or entail a risk of violation of Swedish or foreign laws or regulations.

?