Chinese data fuel optimism
Business confidence is rising in China according to data from the Middle Kingdom. "This supports our expectation that growth in China will once again begin to rise," says Danske Invest's chief analyst. However, housing market data remain a source of concern.
All eyes are trained firmly on the Chinese economic data as they tick in. Since the turn of the year, analysts and economists have been disappointed by the absence of economic growth that many had expected would once again pass 7 pct. in 2014. Instead, growth has declined, causing concern among investors and analysts. Danske Invest’s chief analyst Bo Bejstrup Christensen has previously estimated that the bottom has now been hit and that the Chinese economy will once again improve. New business confidence indicators confirm this view.
“Over the past two months, we have argued that the economy had bottomed out and that confidence indicators would rise again as an indication of increasing economic growth – though we are not counting on 8 pct. growth as previously. The new business confidence data clearly showed that China is heading in the right direction,” explains Bo Bejstrup Christensen.
The spell of disappointment could be over
The Chinese economy therefore looks set to stop the flow of negative news that has hit the markets over the past 12–18 months, when economic growth continued to decline – and business confidence was further undermined. However, there are now signs that the spell of disappointment may be over. Recent months have brought good news, and the new business confidence indicators represent more progress.
Bo Bejstrup Christensen is not overly optimistic, however. The Chinese economy still has some factors of uncertainty that could derail the development. He mentions the housing market as one example.
Housing market data cause uncertainty
“The latest housing market data show that home sales have begun to decline and that prices are also falling in some urban areas. This would appear to indicate a weaker housing market but we believe it is a delayed result of the Chinese authorities’ campaign to restrict and control lending growth, and therefore does not mean the housing market is likely to collapse,” says Bo Bejstrup Christensen.
The optimism regarding the Chinese economy is good news for investors as it will reduce concerns about China. It will help global equities in general and also equities from emerging markets that experienced headwinds in 2013 and a further decline at the beginning of 2014. However, since the end of March, equities in the emerging markets have been on the rise once again – e.g. as a result of China’s recovery.
If you are an investor with an interest in investing in emerging markets, Danske Invest offers a range of sub-funds that invest in both equities and bonds from this region. One of the equity sub-funds is Nye Markeder Small Cap, which has outperformed its benchmark for the past three months – most recently in May, when the sub-fund generated a return of 5.5 pct. against a benchmark return of 4.6 pct. On average, the sub-fund has produced an annual return of 22.34 pct. over the past five years – though with significant fluctuations along the way.
