China’s credit metrics
Financing, or the level of credit available, is crucial because it stimulates consumption and investment in an economy. By tracking credit growth in China (MCHI), investors can gauge patterns that forecast future demand.
Aggregate financing is up
August’s aggregate financing, China’s broadest measure of new credit and liquidity, came in at 1,080 billion yuan, a gain of 50% from July 2015. This is almost in line with the economists’ estimate of one trillion yuan. This increase is probably due to the monetary easing measures the Chinese central bank has taken.
M2 money supply picks up
China’s M2 money supply measures M1 (cash and checking deposits) and near money. M2 is an important way to gauge the level of liquidity in the economy. M2 grew by 13.3% year-over-year in August, the same pace as that for July. This measure also came in above consensus expectations of 11.7%. The increasing liquidity in the market is most likely due to the recent stimulation measures taken by the Chinese government.
New yuan loans
New yuan loans for August fell to 809.6 billion yuan from 1,480 billion yuan in July. Economists expected the new yuan loans to come in at 850 billion yuan. New yuan loans for July were at a six-year high due to lending to the securities industry for stock market intervention. For the first eight months of 2015, the new yuan loans reached 8.85 trillion yuan compared with 6.83 trillion yuan for the same period last year.
These measures for credit growth in China were strong in August, which reflected the Chinese central bank’s easing measures. These credit measures in turn impact iron ore miners like Rio Tinto (RIO), BHP Billiton (BBL) (BHP), Vale SA (VALE), and Cliffs Natural Resources (CLF). They also affect the iShares MSCI Global Metals & Mining Producers ETF (PICK) and the SPDR S&P Metals & Mining ETF (XME). PICK invests in the iron ore sector, and it has 16.7%, 2.8%, and 10.9% of its holdings in BHP Billiton, Vale, and Rio Tinto, respectively. XME also invests in some of these stocks.