China’s economy on track with bumps
By Jade Fu, Investment Manager at Heartwood Investment Management
China’s equity markets saw a sharp sell-off at the end of last week on a mix of profit taking, data disappointments and reports of regulators investigating three high profile brokerage firms. Do these developments change our cautiously optimistic view on China?
Although we expected a modest cyclical pick-up in growth in the fourth quarter and have been disappointed by the lack of it, we believe that the overall tone of data out of China continues to support our view of a managed structural slowdown.
We have long held the view that if China is to achieve the transition towards greater domestic demand the likely impact would be for the economy to slow in certain areas, but also thrive in others.
Data trends over the past few months have provided evidence of this unfolding scenario: a slowdown in the manufacturing and Industrial sectors on slower growth in fixed-asset investment compared with healthy services and retail sales activity.
Indeed, investors have been gradually accepting of the idea that China is a two-speed economy since the late August/early September sell off.