Saturday, August 8, 2015

Economy: Is It Time To Call The China Crash Over?

(Drivebycuriosity) - There is a lot ado about the China crash. From June 12 until July 8 the Chinese stock market plummed about 30%. Many pundits claim that this crash could slow the already cooling Chinese economy and will endanger the global economy.  But I wonder, if it is already time to call the China crash over.

Last week China´s stock market, represented by the Shanghai Composite Index, gained 2% and the index was unchanged in the resent 30 days. It looks like that the market is already stabilizing. I suppose that the crash talk is overblown because the drop corrected partly the preceding rally of plus 150%. In the recent 3 months, a period which includes the lamented crash, the stock market lost just 9%. The index is still up 15% year-to-date and has a gain of 71% in the recent 12 months (googlefinance).

Last week we learned that China´s economy gained strength! In July the services PMI rose to a 11-month high, a sign that the service sector is accelerating (cnbc). This strengthens China`s domestic economy and reduces the countrie`s dependency from fickle exports. In June industrial production grew 6.8%, faster than in May (plus 5.9%), and retail sales growth accelerated to plus 10.6% (May 10.1% (foxnews).

I suppose that the crash might even strengthen the Chinese economy! Peking University economist Christopher Balding has calculated, that the bailout and stimulus measures announced since the Chinese equity panic in late June poured a total of $1.3T, or more than 10% of GDP, into the economy (seekingalpha). And Beijing is still pumping billions of Yuans into railways, airports and other infrastructure. The situation reminds of spring 2009 when the Federal Reserve and other central banks ramped up the massive stimulus programs and the now 6 years old bull market started.

I wouldn't be surprised if the Shanghai Composite restarts the rally in the coming weeks and will climb to new highs.

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