Thursday, October 29, 2015

More evidence of China re-balancing

The big news out of China is its decision to end its one-child policy. For investors, however, the news is that the process of re-balancing from financial driven infrastructure growth to household and consumer led growth continues.

A couple of data points came across my desk that confirms this view. First, Capital Economics noted that the Chinese job market remains tight, which reinforces political stability and takes pressure off the urgency for economic growth at any price (via Ambrose Evans-Prichard):

In addition, I had referenced a couple of pairs trades which bought baskets of Chinese consumer oriented stocks and shorted Chinese financials (see Two better ways to play Chinese growth). Both of these pairs indicate the ascendancy of consumer sector.

As we await China's PMI release on Sunday, keep these points in mind should the data come in below consensus. Even if the growth outlook were to disappoint, growth is shifting from "bad" value-destroying growth to "good" consumer led sustainable growth. Don't freak out.

No comments: