What does the Chinese economy mean to the market？
Risk is repeated fluctuations in economic, financial and political that have created a cycle of recession in other parts of the world
People wear masks at a shopping mall in Beijing. Chinese government says it will ease many of its quarantine and corona tests
―― I am James McIntosh, Senior Columnist for WSJ Market
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December 8th is a full two years after the vaccination of the new coronavirus began, but both the US economy and the world economy continue to be dominated by the problems caused by Korona. Uncertainties will be exacerbated as China begins to enjoy the joy and pain of resuming economic activity and seeks final catharsis.
Since the rumors of policy changes in China began to spread, the market has bet on the short-term benefits of resuming economic activity. The RMB has the largest five-week increase in the dollar since its internationalization in 1994, and domestic stocks have risen by about 10.
The risk is the repeated fluctuations in economic, financial and political that have created a cycle of recession in other parts of the world. Stock prices are currently below the level when Margaret Keenan, who lives in pensions in British Coventry, became the first official inoculum of the new corona vaccine.
There are three reasons why the Chinese economy is unlikely to be affected by the problems that hit other parts of the world. That doesn’t mean that Chinese stocks are clearly cheap, as many think. Nor does China’s resumption of economic
activity cause confusion in the world.
The first reason is that economic stimulus measures such as those that supported the recovery after the US and European lockdown （ urban blockade ） lifted and boosted the job market and overheating of inflation have not been implemented in China. That is. According to the International Monetary Fund （IMF）, China’s original support measures were relatively small, with the United States providing support measures equivalent to 26% of gross domestic product （ GDP ） by September 2021. China remained at 5. Since then, the Chinese government has refrained from large-scale stimulus measures.
In China, checks are not provided and households are not moisturized as part of the stimulus package, so the recoil seems to be not so great. As a result, airlines, hotels and restaurants should be more likely to meet the increasing demand. Also, the boom in products that have attracted the demand for telecommuters is small, so that is less necessary than in developed countries where the production capacity that was being devoted to exercise bikes and laptops had to be restored.
Moreover, China has less immunity to new corona, and is resuming economic activity more carefully than other countries, and a sharp recovery in demand cannot be expected. If the corona infection spreads and the hospital is full, consumers will not be alert if the government does not reintroduce the lockdown.
The second reason is related to that, as China has a high youth unemployment rate and SMEs have been hit, there is ample economic surplus to expand demand-increasing services. That is. Global pressure is likely to be relieved. China’s economic activity resumed when growth in other countries around the world slowed, and pressure on crude oil prices and other essential imports is likely to ease.
The third reason is that China should not be like the United States, where the labor shortage has deteriorated with more people coming out of the workforce.
UBSTao Wang, Chief Economist for China, 「 checks are never delivered and people are struggling in terms of income, so it’s not easy to decide not to return to the workforce 」 Said.
Many investors note that China is not being favored, which is usually a good sign. The Chinese stock index of the rice index-dividing company MSCI was rising at this point, but the expected stock price rate of 12 months ahead （PER） is 12 times, below 18 times that of the United States. Foreign demand for Chinese stocks purchased through a mutual trade （ Stock Connect ） that connects the mainland China and Hong Kong stock markets also declined sharply from August to October.
Still, given the magnitude of unexpected fluctuations in commodity, service and asset prices experienced in the United States, China’s economic recovery needs to be carefully predicted. At one point, crude oil sinking negatively on a barrel price exceeded $120, and fell after transportation and timber futures prices doubled, IT （ Information Technology ） Corporate Stock It was a surprise that the price bubble collapsed.
Worse, China could deserve a discount on the United States. Many of the causes are not concerns about the Korona policy, but due to structural problems of geopolitical unrest, lack of rule of law, and collapse of housing developers.
China’s valuations have fallen sharply, but at about the same level as before Corona, as well as discounts to the United States.
China’s resumption of economic activity, the world’s second largest economy, is a good source of equity for any country at first glance, as it pushes demand and eliminates supply restrictions. But if China boosts global demand, especially crude oil demand, it will be more difficult for central banks in other countries to cool the heat of their economies. China’s resumption of economic activity may not be as troublesome as the West, but it is quite possible to cause confusion.
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