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10:24
Apr 16
Apr 16
FXI
CHIQ
EWG
▾
MED
Broad China equities remain a value trap as top-line GDP masks a severe private sector contraction.
The market is taking the 5% GDP print at face value, but bottom-up data shows private fixed asset investment contracting and a structural balance sheet recession. What is not priced in is the prolonged earnings drag on domestic-facing large caps; until the credit impulse genuinely turns, any rallies in broad Chinese indices should be faded.
"Instead it looks pretty clear that the post-covid deleveraging remains fully in force."
FXI NEUTRAL
medium-term
Chinese consumer discretionary stocks will severely underperform as wage growth hits multi-year lows.
Consensus still hopes for a delayed post-COVID consumer recovery, but with wage growth slowing to 4.9% and rising localized price pressures from oil, the Chinese consumer is structurally impaired. Shorting the consumer discretionary sector directly isolates the weakest component of the Chinese economy without exposure to the state-supported manufacturing/export sectors.
"A big reason for this is that household demand continues to slow pretty significantly. The latest read showed it growing at a mere 1.7% for the year."
CHIQ NEUTRAL
medium-term
German equities face a dual headwind of collapsed Chinese domestic demand and fierce export competition.
The second-order effect of China's bifurcated economy is highly toxic for European industrials. Because China cannot absorb its own production domestically and is restricted from the US market, it is dumping excess industrial capacity into Europe and emerging markets, which will crush the margins of German manufacturing and auto exporters.
"The only real bright spot is in production... as China reroutes the targets for its output to areas outside the US."
EWG NEUTRAL
medium-term
MED
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