There’s been a lot of crowing ahead of the Year of the Rooster (started on 28 January). While investors should listen, their prime focus in the New Year ought to be on China’s improving growth signals and emerging opportunities in individual Chinese stocks.
It is still too early to determine the eventual effects the new U.S. administration will have on global trade, but we believe sanctions against Chinese imports will almost certainly be too costly for the U.S. consumers. Making smartphones more expensive, for example, will not be popular. Other practicalities suggest high tariffs are improbable too: U.S. businesses have spent decades assembling supply chains in China. They rely on them now, and cannot recreate them quickly domestically - or perhaps even at all. A pragmatic approach to trade with China is therefore the most likely outcome, in our view, but we will be watching this area carefully.
Signals point to a strong year ahead
The question of U.S. trade aside, the Chinese economy enters the New Year looking robust. The most recent quarterly data show that trade, producer price indexes, purchasing manager indexes and most high-frequency indicators like construction activity or retail sales continue to recover, highlighting an economy gaining in strength. This improvement should persist in 2017, leading to industrial profits growth and further upside in earnings.
This post originally appeared on the BlackRock Blog.