Composite Index Rises on China’s Better-Than-Expected GDP

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Shanghai Stock Exchange Composite Index rises

The SSE (Shanghai Stock Exchange) Composite Index rose 2.2% to 3,054.3 in the week ended July 15, 2016, after better-than-expected GDP data signaled that the Chinese economy is stabilizing. China’s economy grew 6.7% YoY (year-over-year) in 2Q16. As this GDP growth was due to government stimulus rather than private sector investments, it’s expected that Chinese authorities are not in the mood to announce any major fiscal and monetary stimulus to boost the economy. Meanwhile, Capital Economics’ China Activity Proxy, which also monitors China’s economic activity, showed that China’s economy expanded 4.5% in the second quarter.

Moreover, by 2020, the Chinese government intends to double the size of the economy as it was in 2010, and maintain a minimum average growth level of 6.5%. To achieve this goal, China will focus more on innovation and the services sector.

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Disappointing foreign trade data

In June, China’s exports declined 4.8% YoY, greater than the 4.1% drop in May. Imports fell by 8.4%, versus 0.4% in May. Exports are declining due to a sluggish global demand. The strengthening of the US dollar amid Brexit uncertainties has caused the Chinese yuan to tumble. It is widely expected that China could further depreciate the currency by the end of the year.

Investment impact

For the week ended July 15, mutual funds such as the Templeton China World Fund (TCWAX) and the Matthews China Fund – Investor Class (MCHFX) were up by 4.6% and 4.5%, respectively. Meanwhile, for the same period, the iShares MSCI China ETF (MCHI) and the Deutsche X-trackers Harvest CSI 300 China A-Shares ETF (ASHR) were up by 3.5% and 2.1%, respectively.

NetEase’s (NTES), JD.com’s (JD), and Vipshop Holdings’ (VIPS) American depositary receipts were up by 5.4%, 3.3%, and 3.0%, respectively, for the same period. In the next article, we’ll look at China’s GDP data.

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