The China data continues to look fairly ordinary. GDP came in well below expectations (0.2%, vs 0.4% expected)…
and fixed asset investment continues to moderate. This belies the almost certainly awful data for late August and September, which is when the fallout from Evergrande began to really heat up.
The retail sales growth rate continues to bend right before your very eyes, with the run-rate/growth trajectory notably below that of say 2015.
Households just do not have a large enough share of income to enable China to persist with the present growth strategy (housing that no-one can afford, that accordingly sits vacant, even as new supply is added through overinvestment to residential and commercial property).
Implications are the same as they have been for years. A crash is unlikely, given the power and wealth of the state, but property demand and the associated raw material inputs…
…will decline. In turn, there’s comparatively little investment implications for us. We are UW emerging market equity exposures, and have no emerging market debt exposures.
We are materially underweight iron ore, in our direct Australian share exposures, and although we’ve got BHP in the portfolio, it is more a case of managing the underweight, and recognising that post a fall from c$230/tn down to $120/tn, we wished to make some modest additional allocation to the sector.
We remain quite happy holding Alumina (the headstock), which we bought when it was deeply out of favour, largely due to the attractive yield despite bottom of the cycle pricing for alumina (the commodity) given the favourable cost curve positioning and net cash balance sheet.
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