*By Christophe Barraud, Chief Economist & Strategist at Market Securities
According to TrackInsight data, investors kept withdrawing funds from “Chinese Stocks” ETFs last week with outflows reaching a new YTD high.
More and more investors have taken profits from Chinese stocks in a context where April economic figures were disappointing and several proxies suggest that the trend is unlikely to improve in the short term. According to Bloomberg Economics gauge, China’s economic outlook deteriorated again this month. In this context, participants should focus on the first official data for May (Manufacturing PMI), which will be released on Friday. The consensus expects a print below 50, which would be the first contraction since February 2019.
In the meantime, a CNBC article also points to a challenging year ahead for Chinese companies after the National Bureau of Statistics recently revealed that industrial profits fell 3.4% YoY in the first four months of this year.
Separately, tensions between the U.S. and China have gained traction since last week and there is a clear feeling that rhetoric is shifting from a Trade War to a Tech War. Among the recent developments, several Chinese media, including People’s Daily, raised the prospect of Beijing cutting exports of rare earths, that are critical in energy, defense, semiconductor and automobile sectors.
All in all, it confirms my view that China changed its stance and that investors are still too optimistic about a trade deal in the short term. The problem is that latest signals show that, after having experienced a recession, global trade growth should remain under pressure in the short term. As a matter of fact, the KOSPI index (which is very sensitive to global trade and therefore used as a leading indicator) fell again this morning and even turned negative YTD.
Disclaimer – http://www.market-securities.com/disclaimer-2