By Anneken Tappe, MarketWatch
Data over the weekend showing China’s economy saw its weakest growth since 1990 helped cast gloom over financial markets as U.S. traders returned Tuesday from a three-day weekend.
But it’s a downbeat shift in rhetoric from President Xi Jinping that investors shouldn’t ignore, says one analyst.
China’s gross domestic product grew 6.6% in 2018, the weakest expansion Beijing has seen in 28 years. Following the data, state-owned news agency Xinhua reported that President Xi Jinping told officials to be wary of ”black swan” and “gray rhino” events. Black swans are unforeseen events that have extreme consequences, while gray rhinos are events that are widely foreseen yet neglected.
Global stocks fell on Tuesday, with the likes of the Shanghai Composite /zigman2/quotes/210598127/delayed CN:SHCOMP -0.11% , Shenzhen Composite Index /zigman2/quotes/210598015/delayed CN:399106 +0.14% and CSI 300 /zigman2/quotes/210598128/delayed XX:000300 -0.09% all ending the session more than 1% lower. U.S. benchmarks like the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -0.66% and S&P 500 /zigman2/quotes/210599714/realtime SPX -0.79% were trading in the red., while the iShares MSCI China ETF /zigman2/quotes/206267952/composite MCHI -0.16% was down more than 2%, according to FactSet.
Some analysts played down the data, arguing that the worst might be discounted by the markets as Beijing continues to provide stimulus and talks between U.S. and Chinese negotiators appeared to ratchet down tensions somewhat last week. But not everyone was convinced.
“In short, we have ‘China expert’ Western analysts shouting ‘Industrial production stronger at 5.7%’, and Bloomberg financial analysts saying ‘This hype around China ‘slowdown’ is entirely misplaced’ to underline that Chinese markets only have upside from here; and yet we have the Chinese president talking about ‘sharp and serious dangers’,” wrote Michael Every, senior Asia-Pacific strategist at Rabobank.
“Even allowing for the political and cultural/rhetorical differences, that’s a gap worth paying attention to. Or at least it should be,” Every said.
Though Xi’s comments were new and perhaps unexpected for financial markets, the slowing of China’s economy isn’t. And there’s nothing new about the fear that a hard landing for the economic powerhouse could do to the global economy given it is the growth engine of the world. As such, an abrupt slowdown in China would hurt an already soggy global economy.
Except the slowdown hasn’t been abrupt but gradual.
A “slowing down in China is not a collapse,” said Fan Xinghai, vice chairman of China’s Securities Regulatory Commission at the World Economic Forum’s annual meeting in Davos, Switzerland, adding that overheated sectors like real estate and infrastructure could benefit from a market correction.
(Though to be fair, that sounds scary if you’re Australia and you supply a good chunk of the iron ore used in Chinese infrastructure and construction projects.)
But maybe it isn’t all doom and gloom. Some believe China is slowing simply because its economy is maturing. Market participants also suggested in the eye of the most recent “bad” data that Chinese equity valuations have come off their highs and now look attractive.
Chinese Vice Premier Liu He is scheduled to visit Washington at the end of the month, spurring hopes of the U.S.-China trade finally getting resolved. Two weeks ago, Beijing pledged to buying more U.S. agricultural, energy and other goods, according to U.S. officials.
Meanwhile, Chinese authorities have already pledged to up their support of the private sector through multiple initiatives including fiscal policy. And discretionary spending? Tax cuts could keep people spending, said Michelle Lam and Wei Yao of Société Générale.