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News and Insights

Aura Global Insights – Issue No. 19

 

CHINA: THE BAD AND THE GOOD

Chinese trade remains weak and a headwind to global growth, but credit conditions continue to ease.

The credit numbers released this week show a ray of hope. Adjusted total social financing growth continues to improve as monthly credit creation is robust, hitting CNY2.26 trillion in June (versus analyst expectations of CNY1.9 trillion). Crucially, credit growth is driven by mortgages and local government bonds, which result in actual spending, unlike short-term loans.

The outlook for credit growth is also positive. The impact of previous cuts in the reserve requirement ratio will continue to support growth. Moreover, recent comments by Chinese officials suggest that the Chinese central bank will use the current wave of global monetary easing to cut rates – sending a strong signal that Chinese policy may remain easy for the next nine to 12 months.

Finally, local government bond issuance should pick up further. Q3 coincides with the new provincial budgets and is historically a period of strong bond issuance. Beijing is easing budget and issuance rules, which may feed those dynamics.

Bottom Line: Chinese activity may remain soft over the coming months, and Q2 growth numbers are likely to be very weak. However, the previous pick up in credit is likely to gather steam and support Chinese growth conditions in the tail end of the year and early next year. The Chinese drag on the world may be progressively receding.

If you have any questions please contact one of the team on +61 2 9199 8860 or info@aurawealth.co


This is communication is provided for informational purposes only by Aura Wealth Pty Ltd (AFSL 380552) and is of a general nature only. Accordingly the information provided does not take into account your investment objective, financial situation or needs. You should seek professional advice before making any investment decisions and consider whether the information is appropriate in light of your objectives, financial situation and needs.  The views and opinions expressed in this material are those of the author as of the date indicated and any such views are subject to change at any time based upon market or other conditions. The update may contain certain statements deemed to be forward-looking statements, including statements that address results or developments that Aura expects or anticipates may occur in the future. Any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected in the forward-looking statements. Past performance is not a reliable indicator of future performance.