Chinese economic data disappointed Friday as GDP for the first
quarter 'only' rose by 8.1% on an annualized basis.
[caption id="attachment_56158" align="alignright" width="220"
caption="Beijing's Great Hall Of The People, the Chinese Parliament
Markets traded fairly flat before the official release with
S&P500 futures up about a tenth of a percent and most Asian
markets opening slightly higher. The market consensus for 1
quarter GDP was for 8.4%, a steep decline from 8.9% growth in the
fourth quarter of last year, although still well above the official
government target of 7.5%.
S&P500 futures were trading down about a quarter of a
percent after the report, suggesting a down market when trading
begins in New York. Shares in Asian markets held up fairly well in
the face of the data with most markets remaining slightly to the
While 8.1% growth may be an enviable position to those in the
U.S. or European Union, many investors are worried about China's
reliance on fixed investment. Fixed investment in the country
accounts for 47% of GDP and is seen as weak going forward. The
government has made it a goal to increase domestic consumption to
balance out the economy even as the target growth rate for the year
Markets had been fairly optimistic on Thursday as China reported
new bank lending of more than CNY1 trillion ($160.1 bn) in March,
well over expectations. The central bank has relaxed bank reserve
requirements twice since November of last year and it appears that
this is now working its way through the economy.
March inflation data showed pricing pressures increased faster
than expected to 3.6% on an annualized basis but still below
pressures seen last year. While interest rates have not been
reduced since 2008, many analysts see at least two more cuts to the
reserve requirement this year.
Though first quarter GDP growth is above the government's target
for the year of 7.5%, the weakest year-over-year growth since 2009
may move the central bank to further stimulus measures.
The GDP number clearly overshadowed other data for the
world's second largest economy but also reported was
industrial production, fixed asset investment, and retail sales.
Industrial production improved 11.9% while retail sales increased
15.2% in March, both above consensus expectations. Fixed-asset
investment for the month increased by 20.9% over a year ago
Overall, economic data released today shows a slight moderation
in the economy but still respectable gains and certainly not the
'hard-landing' than many are forecasting.
Chinese stocks remain at attractive valuations compared to those
in the United States or other emerging markets. Equities on the
Shanghai index are trading at an average of just 9.9 times trailing
earnings, just off record lows of 8.9 times on January 6
of this year. While the disappointing read on GDP may pressure
shares in the short-term, valuations and long-term growth keep
Chinese stocks clearly on investors' screens.
Pressure from the data may fall on commodity producers like
), the government oil and gas producer. While risks of government
management of the company persist, shares pay an attractive 3.3%
dividend yield and have outperformed most others with a drop of
only 4.3% over the last year.
The Global X China Materials Fund (
) offers investors diversified exposure into material companies
domiciled or with revenues in the mainland. The fund holds 61.5% of
assets in metals & mining companies, with the rest (38.5%) in
chemical companies. Shares are down a sharp 36.7% over the last
year but trade for just 6 times trailing earnings.
Longer-term picks may come from retailers and other companies
that service Chinese domestic consumption. Focus Media Holdings (
) operates a liquid crystal display network of digital advertising
in China. As of mid-2011, the company had approximately 170,000 LCD
displays in about 95,000 commercial buildings in 90 cities. Shares
are down about 18.2% over the last twelve months, slightly more
than the 16.9% drop in the iShares FTSE China 25 (
) over the same period.
The Global X China Consumer (
) invests at least 80% of its assets in consumer companies that are
either domiciled in, or whose revenues are primarily fromChina.
Shares are down about 15% over the last 12 months but may offer a
good entry point for long-term investors.