Chinese Economy — Chinese Data Poses Conundrum for ASX Investors

Chinese Economy — Chinese Data Poses Conundrum for ASX Investors

Despite a diplomatic tiff, China is still a vital factor for local investors.

As the world’s second largest economy, and our largest trading partner, the direction of the Chinese economy is pivotal. If they take longer to recover than expected, it could be bad news for us.

So, with that in mind, the latest economic data is a mixed bag.

On the one hand Chinese industrial production was up 3.9% in April. That’s compared to April 2019 too, not the 1.1% fall in March 2020.

The number blew the forecast 1.5% out of the water. A strong sign that things may be picking up in the Middle Kingdom.

But, this result was paired with a 7.5% fall in retail sales. A bigger drop than many analysts had anticipated. And it brings the year-to-date fall to 16.2%.

Compounding this consumer malaise even further was a rise in unemployment. Which again, came as a shock to many.

It seems any hopes for a smooth V-shaped recovery may be dashed. Especially when you look at the whole picture…

See no loss, speak no loss

When it comes to economic data, a single number doesn’t always tell the full story. Even stats or figures from reputable countries can be misconstrued at times.

Sometimes deliberately, sometimes out of ignorance.

There is a reason economics isn’t an exact science. It pays to have at least a little air of scepticism.

However, when it comes China there is room for more than most. We’ve seen evidence of Chinese officials tampering with data before and it wouldn’t surprise us if they’re doing it now.

Obviously, we don’t know if they are or aren’t, we’re just saying take any data with a grain of salt.

Beyond this though, we do know that something fishy is going on. My colleague Shae Russell reported on it just last week:

While most are chewing on what number is assigned to growth, we are missing out on structural changes within the Chinese stock markets.

Over the course of January to March, eight state-owned (or state-supported) Chinese companies confirmed they are delisting from the Hong Kong Stock Exchange.

The Nikkei Asia Review noted some observers said that was in line with the Chinese Communist Party’s plan to ‘strengthen its industrial base’.

Yet taking state-owned companies away from an open market does the opposite.

Not only does it remove these companies from international markets, it completely removes international transparency.

The balance sheets, cash flows, and debt levels analysts use to judge the health of a company are likely to be lost. Taking them off the HKSE — and keeping these companies to mainland exchanges only — completely removes the transparency Western markets operate with.

Amongst all of this, it’s a lot easier to hide debt, increase debts, devalue assets, or write them off completely if no one is watching…

This coordinated obfuscation of economic health is troubling. A sign that perhaps things aren’t as rosy as everyone hopes.

For Aussie investors that is something you need to take note of. Because if China really is in sticky situation, when it blows up in their face, we’ll all be counting the costs.

If you’re not prepared to take that risk, then you need to seriously consider your position. Now is not the time to be second guessing yourself.

That’s why our in-house guru, Jim Rickards, recommends investors prepare a ‘Financial Pandemic Shelter’. A strategy that gives you the best chances of emerging financially healthy after the virus is gone.

For more info on how you can build your own Financial Pandemic Shelter, check out the report in full, right here.

Regards,

 

Ryan Clarkson-Ledward,
For The Daily Reckoning Australia