Investment Clock insights

Super strong China data

Trevor Greetham

15 April 2016

Last summer's Chinese stock market collapse has triggered two rounds of unexpected currency devaluation that rattled global investor sentiment. This morning we learned that authorities have gone further, unleashing the largest fiscal and monetary policy injection since the financial crisis.

Chinese M1 money supply grew by 22.1% year-on-year, the fastest growth since July 2010. Money supply data tends to lead economic growth (see chart) and we expect the Chinese economy to pick up on the back of this.

China’s domestic stimulus measures should help underpin a nascent recovery in global manufacturing and improve commodity demand at the margin. Better data out of China should also make it easier for the US Federal Reserve to resume interest rate hikes later this year without China pulling the rug out from under them with large currency moves.

We remain overweight equities, especially in Europe and Japan, regions which should benefit from a revival of dollar strength. However, we’ve trimmed our underweights in emerging markets on the basis of the increased likelihood of a synchronised global upswing taking hold later this year.

The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. The views expressed are the author’s own and do not constitute investment advice.