China Leveraging Up Global Equities

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The popular global growth story gets some important data points next week, China comes in with their import and export data on Monday May 8, 2017.

Street forecasts for China’s April import growth are wrapped around 18% year over year, that’s compared  to a 20.3% March reading.   Looking at export growth, the Street consensus is at 11.3%, compared to 16.4% in March.   We’re looking for much softer reading from both, oil is telling us something here below.

Everyone is Bought In

MSCI World vs OilIn recent days,  markets have witnessed significant weakness in the commodity space, especially focused toward the growth sensitive segment – oil, gas  and base metals.  On the other hand, global equities are surging while the growth story is faltering.

MSCI Global Earnings Growth Estimates are Sky High

2017: +13.7% (record high)
2016: +1.9%
2015: -0.7%
2014: +4.2%
2013: +6.5%

MSCI, Datastream


In front of their 19th National Party Congress this Autumn, China is finally introducing some more meaningful regulations into their banking and credit systems – they’ve been levering up for the last twelve months, trying to juice equity market returns – now they’re taking the foot off the gas pedal.

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We have always believed a major reason markets and the global economy reflated last year was influenced by China’s levered fiscal policies put forth last summer.  They fueled a recovery in their industrial sector. As that happened, commodity prices ripped and developed markets in Europe and the U.S. saw economic expansion. This is at great risk now, China is tightening liquidity and interbank lending rates are surging. We saw the effects of a China slowdown on Fed policy in 2015, this could be round two.



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