China is on the mend, and it desperately needs it.
Here is some more evidence of it for China investors. Though, fair warning, it’s negative.
Industrial profit growth year-to-date versus year-on-year is looking better. China’s industrial profit growth rose to 6% annualized in May from -4.3% in April.
Its year-to-date growth is not great. That’s -19.3% year-over-year, an improvement from the -27.4% a month ago. It’s still well below 2019’s contraction of 3.3%.
The less-negative numbers are all being driven by higher industrial production growth in May — up 4.4% from 3.9% in April — and a drop in inflation of the purchase price index for raw materials.
Profit growth at state-owned enterprises fell to -39.3% yearly in the first five months of 2020 from a 12.% decline in 2019, while profit growth at foreign and private enterprises over this period dropped by 18.4% and by 11.0%, respectively, from -3.6% and a 2.2% gain in 2019.
“The economy is still far from a full recovery,” says Ting Lu, a China economist for Nomura Securities in Hong Kong. Beijing cannot afford to reverse its easy money policies, he says.
Asian equities were largely lower on Monday, but China stocks as measured by the XTrackers A-Shares ETF came back to life in New York today. Stocks have been a bit iffy due to concerns over a never-ending pandemic sending everyone into hiding again.
Coronavirus cases exceeded 10 million globally at the start of the week, while deaths exceeded 500,000. To put that into perspective, of the known number of cases, some 0.14% of people have had the virus and 0.007% have died from it.
Hong Kong and Mainland China returned from their holiday weekend groggy due to a fairly quiet news cycle as outperforming sectors were largely sold off in Hong Kong in some profit taking moves today.
“Try not to make wild, short term bets on this market,” says Jin Zhang, a fund manager with Vontobel Asset Management’s Quality Growth Boutique Emerging Markets Equity Strategy fund. “You have to cope with sell-offs, and ride out this coming volatility. I would stay invested until you have more clarity about the virus and that is going to take a while. It’s very difficult to have a medium term view of the market because there are so many unknowns right now.”
Some investing thoughts from Jin:
“Before Covid, I was investing in high quality businesses. If you’re relatively new to the market, and if you are only familiar with some American names like Google or Facebook, it’s not necessarily a bad place to be. We have Alibaba and Tencent in China. We think these are long term winners, so not a bad place to start. You have to put some thought into it. We know Google will be around in five years. Not so sure about Zoom. Yum! China…that’s a good company,” he says. “They’re priced fair enough.”
I’ve spent 20 years as a reporter for the best in the business, including as a Brazil-based staffer for WSJ. Since 2011, I focus on business and investing in the big