Something for Your Espresso: The Dust Is Settling in China
Morning from Copenhagen.
The dust has somewhat settled in Chinese assets, with modest moves this morning in both the Hang Seng and copper, but the very China-sensitive metals like iron ore and steel are continuing their downward trajectory.
China was out yesterday playing headline hockey once again, announcing a speech by the Chinese Property Ministry on Thursday, which is expected to elaborate on the state of the Chinese real estate market and the progress made so far in supporting the property market.
The problem is that the stimulus and other initiatives announced by China at the moment lack a true plan for how they will deal with weak domestic demand among consumers. Sure, they can add liquidity to state banks, which can buy unsold homes and rent them at favorable prices, but it doesn’t change the fact that house prices are dropping, forcing Chinese consumers to prioritize paying off their debt rather than spending their money.
The additional rounds of announced stimulus have not really been a success, failing to boost Chinese equities to the extent expected, and we are also starting to see fund flows fade slowly. Retail investors are jumping out of the China trade now, and there are not many arguments for why Chinese assets should continue to rise from here.
Chart 1.a: Chinese fund flows have faded
While the dust has somewhat settled in Chinese assets, with modest movements in both the Hang Seng and copper, highly China-sensitive metals like iron ore and steel continue their downward trajectory.
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