Matthews Asia - Sinology
Matthews Asia is an independent investment management firm focused solely on investing in Asia. They specialise in actively managed, bottom-up portfolio management, with a focus on generating long-term investment performance.
The Great China Disconnect
“Give me a one-handed economist! All my economists say, ‘on one hand ... on the other.” - U.S.President Harry S. Truman
The disconnect between weak market performance in China, on the one hand, and strong macro conditions and corporate earnings, on the other hand, is likely to narrow.
Key Points:
- China remains the world’s best consumer story, and manufacturing is also healthy, which is why there hasn’t been significant stimulus.
- The resolution of the U.S.- China trade dispute in the coming quarters is expected, but if it does escalate into a trade war, Beijing has the resources to mitigate the impact on its economy.
- Industrial margins in the first eight months of this year are at the highest levels in eight years for the same period. The share of total credit coming from traditional bank lending has surged to more than 80%, up from 51% five years ago.
- The short-term direction of U.S.– China relations is difficult to predict. However, there are a few key points to keep in mind. The Chinese economy is no longer export-driven, so the impact of a trade war with the U.S. would be modest. Much of the impact of Trump’s import taxes will not be borne by Chinese companies. About two-thirds of the largest exporting companies based in China are foreign-owned.
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