Brokerages Raise China Outlook as Data Signals Turnaround

Data

China’s slowdown was seen as a major risk for global markets last year. However, over the last month, several data points from China have shown signs of bottoming out. Earlier this month, China’s manufacturing PMI beat expectations. Last week, the country’s retail sales and industrial production data also looked strong. According to China’s estimates, its economy expanded 6.4% year-over-year in the first quarter. Analysts were expecting Chinese GDP to grow 6.3%.

Brokerages Raise China Outlook as Data Signals Turnaround

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Signs of bottoming out

Amid signs of bottoming out, several agencies have raised China’s growth outlook. After Chinese GDP growth surprised on the upside, Barclays said it expects the Chinese economy to grow 6.5% this year. Previously, it had forecast that the Chinese economy would expand 6.2% in 2019. Citi also raised its growth forecast from 6.2% to 6.6%. According to Citi, “Our new baseline scenario is that a framework trade deal between the U.S. and China will be reached in (the second quarter) and it will lift most, if not all, existing punitive tariffs.” ING also raised its forecast to 6.5% from 6.3%. China is targeting growth of 6.0%6.5% for 2019. Earlier this month, the IMF raised China’s 2019 growth forecast to 6.3% from 6.2%.

Equity markets

As sentiments have improved in China, we’ve seen a rebound in Chinese equity markets (EEM). The iShares Large-Cap ETF (FXI) has gained 17.0% year-to-date. Alibaba (BABA), Baidu (BIDU), and JD.com (JD) have respectively gained 36.4%, 7.8%, and 43.4% YTD. However, NIO (NIO) has lost more than a quarter of its market capitalization.

Meanwhile, while US and Chinese data has looked encouraging, Eurozone’s economic data has disappointed markets. Read Europe Looks To Be a Worry as China Shows Signs of Bottoming Out for more analysis.