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Towards the end of the XPeng article published recently, it was mentioned that Emerging Markets are rising in valuation relative to U.S. stocks. Added to this is a report from Goldman Sachs earlier this month stating that “weak US dollar cycles tend to bode positively for emerging-market assets” that supported this trajectory. The report also states: “Given the nature and sequencing of the Covid crisis and reopening aftershocks, the past few months can be characterized as falling EM growth forecasts with outperforming growth differentials” while promoting the attractiveness of the MSCI China Index and early-cycle emerging markets in Southeast Asia.
With regard to China, however, alternative data seems to suggest that this attractiveness might be overstated. In what could be considered as the first sign that China’s economic growth might not be a strong given, real estate data already indicates a steadily increasing dip in monthly sales over at China:
The second sign is hidden in travel statistics. Alternative datasets from satellite-driven observations lead specialists to estimate that both freight and travel have still not recovered:
The third sign was that retail sales aren’t exactly showing similar growth trajectories seen in 2020 (i.e. before the pandemic induced a slowdown):
The fourth sign was that steel stockpiles are at all-time highs relative to all of last year and this year. Steel stockpiles are a key feature for identifying if inventories of finished goods are being exhausted or not:
Another sign of Chinese citizens feeling the pinch has been recent reports suggesting that buyers in over 100 projects spread out across 50 cities in China have halted payments. Altogether, the property sector accounts for 25% of China’s GDP, with at least 4.5% of all outstanding mortgages in China expected to be affected.
Unsurprisingly, the median forecast for China’s growth for the year has been lowered by investment banks to a median of 3.4% – with Goldman Sachs holding the higher end of the estimate at 4%. The Chinese government had announced a growth of “around 5.5%” in the BRICS Summit in June.
Also unsurprisingly, China’s Ministry of Finance is considering allowing local governments to sell $220 billion worth of “special” local bonds in this year’s second half. The bond sales are reportedly being brought forward from next year’s quota since local governments typically don’t sell debt until January 1. Given the centrality of infrastructure spending to Chinese economic growth, local governments are being asked to propose and start new projects as soon as possible.
Meanwhile, the US dollar is gaining strength, which is another sign of an expectation of US recession. Despite declines in U.S. dollar purchasing power (as indicated by high inflation), many traders and strategists are expecting the Euro to break past the psychological barrier of $1.00 and go down to $0.9850 on a short-term basis as more investors seek refuge in the US dollar rather than be invested in the market. In expectation of the Euro breaching the $1 barrier, shorts in Euro positions have substantially increased last week.
Now, while Brent prices have fallen to pre-“Ukraine invasion” levels last week, the extent of price increases in other non-energy items – which aren’t solely attributable to corporate price gouging – indicates that relief at the pump wouldn’t necessarily lead to relief for household savings. As it stands, figures released last Wednesday by the US Energy Information Administration suggested petrol demand had slipped to its lowest level for this time of year since 1996 which has many implications, some of them of a more fundamental nature on the economy (as opposed to just household savings).
Furthermore, given the high historical (and recent) correlation in inflation between the U.S. and Europe, it can be expected that similar trends will be seen in Europe as well.
In Conclusion
The facts presented should drive home the idea that even holding high-conviction Chinese assets might not prove to be an effective countermeasure for any of the risk posed by the weaknesses in both U.S. and European economies. If anything, the facts presented along with ever-increasing US Dollar Index level indicates that the recessionary phase continues to loom larger than before.
While this doesn’t bode well for “core” investments, there are alternatives available for tactically capitalizing on short-term trends in “satellite” investments.
Learn more about Exchange Traded Products providing exposure to top Chinese stocks for the upside here and the downside here. Similarly, learn more about DAX-related products for the upside here and the downside here.
Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.
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Notice
If you are not classified as an institutional investor, you will be categorised as a private/retail investor. At this time, we cannot send communications directly to private/retail investors. You are welcome to view the contents of this website.
If you are an ‘Institutional investor’, you affirm either that you are a Per Se Professional Client, or that you wish to be treated as an Eligible Counterparty Client, both as defined under the Markets in Financial Instruments Directive, or an equivalent in a jurisdiction outside the European Economic Area.
Risk Warnings
The value of an investment in ETPs may go down as well as up and past performance is not a reliable indicator of future performance. Trading in ETPs may not be suitable for all types of investor as they carry a high degree of risk. You may lose all of your initial investment. Only speculate with money you can afford to lose. Changes in exchange rates may also cause your investment to go up or down in value. Tax laws may be subject to change. Please ensure that you fully understand the risks involved. If in any doubt, please seek independent financial advice. Investors should refer to the section entitled “Risk Factors” in the relevant prospectus for further details of these and other risks associated with an investment in the securities offered by the Issuer.
This website is provided for your general information only and does not constitute investment advice or an offer to sell or the solicitation of an offer to buy any investment.
Nothing on this website is advice on the merits of any product or investment, nothing constitutes investment, legal, tax or any other advice nor is it to be relied on in making an investment decision. Prospective investors should obtain independent investment advice and inform themselves as to applicable legal requirements, exchange control regulations and taxes in their jurisdiction.
This website complies with the regulatory requirements of the United Kingdom. There may be laws in your country of nationality or residence or in the country from which you access this website which restrict the extent to which the website may be made available to you.
United States Visitors
The information provided on this site is not directed to any United States person or any person in the United States, any state thereof, or any of its territories or possessions.
Persons accessing this website in the European Economic Area
Access to this site is restricted to Non-U.S. Persons outside the United States within the meaning of Regulation S under the U.S. Securities Act of 1933, as amended (the “Securities Act”). Each person accessing this site, by so doing, acknowledges that: (1) it is not a U.S. person (within the meaning of Regulation S under the Securities Act) and is located outside the U.S. (within the meaning of Regulation S under the Securities Act); and (2) any securities described herein (A) have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction and (B) may not be offered, sold, pledged or otherwise transferred except to persons outside the U.S. in accordance with Regulation S under the Securities Act pursuant to the terms of such securities. None of the funds on this website are registered under the United States Investment Advisers Act of 1940, as amended (the “Advisers Act”).
Exclusion of Liability
Certain documents made available on the website have been prepared and issued by persons other than Leverage Shares Management Company. This includes any Prospectus document. Leverage Shares Management Company is not responsible in any way for the content of any such document. Except in those cases, the information on the website has been given in good faith and every effort has been made to ensure its accuracy. Nevertheless, Leverage Shares Management Company shall not be responsible for loss occasioned as a result of reliance placed on any part of the website and it makes no guarantee as to the accuracy of any information or content on the website. The description of any ETP Security referred to in this website is a general one. The terms and conditions applicable to investors will be set out in the Prospectus, available on the website and should be read prior to making any investment.
Leverage Investment
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