Recent data on China’s economy provides further encouragement for investors, following the solid momentum in services and construction activity indicated by March NBS PMI figures. The recent credit data shows an increase in total social financing by 5.39 trillion yuan, exceeding expectations, with loans to the corporate sector showing strong momentum. The issuance of government and corporate bonds also supports key components of fixed investments, including growth in manufacturing and infrastructure investment. Despite likely moderation in export growth due to slowing global demand, high frequency data suggests continued resilience in domestic spending, including rising auto sales and subway traffic.
However, despite these positive indicators, earnings expectations for Chinese equities have yet to catch up. Although downward earnings revisions may be bottoming out, further downward revisions in U.S. equity earnings may create a situation where Chinese equities outperform in the near term.
