Chart of the Week - China Property
The property price downturn has been steep, broad, and drawn-out...
The latest data showed China’s property downturn worsening through March.
The annual pace of declines is the worst in recent recorded history — all 70 cities are seeing annual + monthly price declines, and the duration of the declines is also highly unusual in recent times.
The Chinese property market has historically been a key driver of commodity prices, and the current downturn is a headwind. However this has been offset so far by the global capex theme, reacceleration, and supply constraints.
Another key implication is that along with clear and persistent domestic disinflation, a weak jobs market, and poor consumer confidence – the door is wide open for monetary easing in China, and although some initial steps have been made, more needs to be done.
Hence China remains an important macro swing factor:
Stepped up stimulus would be reflationary, boost the global economy, push up commodities, EM equities.
(however), an ongoing or worsening downturn would be deflationary, present headwinds for global growth, and downside risks for markets.
Expect further stimulus, but also suspect maybe more pain is needed for more significant stimulus given the reluctance demonstrated so far, and constraints on the currency side (China rate cuts vs Fed rate hikes/hold).
Either way, keep a close eye on this corner of the macro universe… surprises on the macro front are rarely true surprises, there are always clues, and you’re being given a major clue right here!
Key point: The current property market downturn in China could have a major impact on global macro and markets in the coming months.
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Aside from the chart above, we looked at several other charts, and dug into some intriguing global macro & asset allocation issues coming into focus:
Market Update: how global markets are tracking
Healthy Correction? a damage assessment on risk assets so far
China Property: checking in on this major macro theme
REITs: looking at the potential upsides and real risks for REITs
Frontier Market Equities: technicals + valuation bull case
CMA Update: annual review of expected growth/earnings inputs
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