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The Chinese economy is faltering, but financial markets are not indicating that this could lead to a full-blown crisis.
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This is according to Louis Vincent Jaffe, CEO of Hong Kong-based Javecal Financial Services.
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“But the strange thing is that such pessimism is not reflected in what the market is indicating.”
China’s economic turmoil has raised fears of a global crisis similar to the 2008 financial meltdown, but many market indicators suggest otherwise, says a veteran financial analyst. Gave Louis Vincent He said.
To be sure, the world’s second-largest economy faces cyclical and structural problems, the CEO of Gavekal, a Hong Kong-based financial services company, wrote in an article. Financial Times.
“Given that the systemic crisis in China will reverberate around the world, this has raised alarm and prompted calls for Beijing to intervene more forcefully to revive the Chinese economy,” Jaffe wrote. “But the strange thing is that such pessimism is not reflected in what the market is indicating.”
After rebounding in the first quarter, the Chinese economy’s recovery from COVID-19 eradication policies has been disappointing, with factories and consumers slowing.
In addition, the real estate market continues to collapse under the weight of debt and defaults, youth unemployment is at unprecedented levels, and consumer prices are in deflationary territory.
Meanwhile, foreign investors have pulled out in droves, as Beijing attempts to shore up its markets Failure to produce a sustainable march.
But Jaffe cited other indicators that offer a different view of the Chinese economy.
Focusing on the banking sector, he noted that lenders’ share price performance tends to decline months before any systemic crisis occurs, as happened before the 2008 global financial crisis.
Instead, bank stocks as measured by the FTSE China A-share Banking Index have risen 2.4% in the past 12 months, outperforming US lenders by about 13%.
Similarly, Chinese government bonds are outperforming US Treasuries, with the long-term bond yielding 17.1% since January 2020. This compares to a negative 13.4% yield for its T-bills peers.
Jaffe also noted that iron ore prices, which are sensitive to the Chinese economy, have jumped 50% from their lowest levels in October 2022.
At the same time, shares of China-sensitive luxury companies such as LVMH, Hermes and Ferrari are trading at or near all-time highs, he added.
“This does not mean that the Chinese economy is facing real challenges or that Chinese economic growth is slowing down cyclically and structurally,” he concluded. “But in short, there appears to be a strong disconnect between the price behavior of most China-related assets, both at home and abroad, and fears of an all-out crisis.”
Read the original article at Business interested
