China Lowers 2019 Growth Target—Hardly a Surprise

2019 growth outlook

Today, China set a growth target of 6.0%–6.5% for 2019. The country had set a target of 6.5% in 2018, and the economy actually grew a bit more than that. Nonetheless, the 6.6% growth China posted last year marked its slowest rate of expansion since 1990.

China Lowers 2019 Growth Target—Hardly a Surprise

Last year, China (FXI) completed 40 years of having opened up its economy. Over that period, the economy has grown at a brisk pace—much to the envy of some other emerging (EEM) and developed countries (ACWI).

The Chinese economy

To be sure, nobody really expects China, a $14 trillion economy, to grow in double digits now. China has been gradually slowing down and moving toward a more sustainable growth rate. The previous investment-led growth model has inherent limits, which China’s leadership realized. The country has been consciously shifting toward a domestic consumption–led model and been addressing structural issues of higher leverage and property speculation.

Not a surprise

China lowering its growth target is hardly a surprise, considering the above facts. China’s manufacturing activity has also been under pressure, given domestic and global headwinds. The country’s automotive sales (F)(TSLA) have continued their poor run in 2019 as well. The World Bank also lowered China’s growth outlook in January, saying, “Growth in China is expected to slow to 6.2 percent this year as domestic and external rebalancing continue.” In the fourth quarter, the IMF also lowered its 2019 Chinese (FXI) growth forecast from 6.4% to 6.2%.

Price action

Let’s look at the US market (SPY). All the FAANG stocks (FB)(AAPL)(AMZN)(NFLX)(GOOG) have bounced back after the Q4 sell-off. NVIDIA (NVDA), Intel (INTC), Advanced Micro Devices (AMD), General Electric (GE), IBM (IBM), and Boeing (BA) have respectively gained 17.6%, 15.7%, 26.6%, 42.6%, 23.2%, and 34.8% year-to-date, based on their closing prices on March 4.

Chinese stocks (TCEHY)(BIDU) Alibaba (BABA), NIO (NIO), and JD.com (JD) are also trading with attractive year-to-date returns.