The Chinese statistics released this morning are such as to reassure us about the Chinese economy. If our analysis of the Chinese economy brings us for quite some time to anticipate a gradual slowdown in growth, due to the transition towards a growth model more related to consumption than investment, the weakness of data throughout the first half of the year could have made us fear a stronger deterioration than anticipated. The support measures from the government seem to bear fruit as GDP grew by 7,0% year on year in the second quarter, against a consensus of 6,8%.
The data for the month of June confirmed this improvement, whether it was the industrial production (increasing from 6,1% to 6,8%), retail sales (volume growth of 10,6% over a year) or investment, especially in infrastructures. They confirm the message regarding foreign trade figures which showed a strong rebound of imports, synonymous with domestic improvement.
These data seem to confirm the recent improvement of the Chinese economy and show that the government maintains its capacity to drive growth. But nevertheless we will continue to closely monitor the Chinese economy as the rebalancing of what has become over the years the second largest economy (measured in terms of purchasing power parity) remains a delicate operation.
As for the Chinese stock market, it welcomed these good figures by a declining 3,5%. This is an opportunity to remind ourselves that Chinese stocks had been carried by a mechanism that is reminiscent of a bubble: almost a million securities accounts opened each day and a very strong increase in leveraged purchases. From the 30th of June 2014 to the 8th of June 2015, the Shanghai stock market rose by 146%. This bubble is deflating gradually. Despite this new popularity of stock market investment, the effects of bursting the bubble should not be too important on the economy. With a PE of 15x, on strong growth forecasts, given the economic environment, Chinese equities do not seem particularly cheap.
Julien-Pierre Nouen - Economist & Strategist - Lazard Fre?res Gestion SAS.