China’s growth

Several observers have cited China’s sputtering growth as the biggest risk for global markets. However, over the last few weeks, we’ve seen some improvement in sentiments, and several agencies have actually raised China’s growth forecast.

China’s Growth Could Surprise on the Upside This Year

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Last week, the IMF said that it expects the Chinese economy to rise 6.3% this year, up from its previous forecast of 6.2%. The Chinese government is targeting growth of 6.0% to 6.5% this year. The economy expanded 6.6% last year, slightly above what the Chinese government guided for.

Growth outlook

HSBC also expects the Chinese economy to witness growth of 6.6% this year. It said, “The shape of the stimulus package this time is very different from earlier rounds” and “that it will not only work, but will also trigger a self-sustained recovery in the coming quarters.”

In the 2015 slowdown, China resorted to big bang infrastructure investments and loosened regulations in the housing sector. It also announced a tax cut on automotive purchases to lift sagging vehicle sales. However, this time, the country has focused on wide-ranging tax cuts and asking banks to lend to small and medium enterprises to shore up growth. We could see more stimulus measures from China (TCEHY) (NIO) in the coming months. If it manages to clinch a trade deal with the United States, China’s growth could actually surprise on the upside especially given the bearish views held by some observers.

Optimism about the US-China trade deal has also lifted US markets (QQQ). Apple (AAPL), Broadcom (AVGO), NVIDIA (NVDA), and Advanced Micro Devices (AMD) have risen 26.6%, 25.8%, 42.6%, and 51%, respectively, year-to-date.

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