What The Bears Are Not Telling You About China

May 27, 2019 6:00 AM ETYINN, YANG, GXC, FXP, PGJ, CN, TDF, CHN, CXSE, XPP, FCA, YXI, KGRN, FLCH, WCHN25 Comments
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Summary

  • We provide, what may seem to some, a heretical view on China.
  • Despite the trade war gloom, we find a couple of interesting and important positive trends in the macro picture for China.
  • The trade war escalation is certainly a clear and definite negative for China, but it's not the only game in town.
  • We actually provide constructive take on the cyclical outlook, and if true this should ultimately be supportive for China and commodities.
  • Looking for more? I update all of my investing ideas and strategies to members of Weekly Best Idea. Get started today »

With all the gloom surrounding Chinese financial markets in the wake of the trade war escalation, we point out in this article (what may be a surprise to some!) that it’s not all bad news in China. The chart in focus for this article shows there has been strong growth in property prices as well as a recent rebound in producer price inflation. In a world that was obsessed with deflation a couple of years ago, this interesting inflationary increase is something worth keeping an eye on for a few key reasons.

Today’s chart comes from an exclusive report on the China Macro Outlook & Chinese Equities, where among other things we stated how property prices have been heating up, which is the focus of this article.

The chart below shows, as alluded to earlier, there has been strong growth in property price but it seems to be stabilizing now. Also shown is a recent rebound in PPI and on face value it appears this is linked to the uptick in property price growth.

Specifically, the chart shows the average property price growth across the 70 major cities against the YoY growth in the headline PPI (producer price index).

Some might point out that the PPI index is mostly driven by commodity prices, and there is a lot of truth to that, but it shouldn’t be lost that the Chinese property sector (and China as a whole) is one of the largest drivers of commodity prices globally from the demand side, with property in particular heavily consuming industrial metals. So there is an economic logic in the link between the two series.

What’s not shown but is also worth mentioning is that according to our data, much of the recent acceleration in property price growth is coming from ex-tier-1 cities. These smaller

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Topdown Charts is an independent research firm covering global asset allocation and economics - bringing a chart-driven, top-down approach to investors.  -->> Check out our new entry-level service: https://topdowncharts.substack.com/--We take a top-down, global multi-asset perspective to deliver:Actionable investment ideasRisk management inputMeaningful macro insightsCharts to use in your own work--Our clients include Pension companies, RIAs, Hedge Funds, family offices, insurance firms, and wealth managers and Investment Consultants.--Sign up for exclusive insights:  https://topdowncharts.substack.com/===================================================

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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