China stimulus

We had a modest conversation over the internet with Michael Pettis, the famed China academic.

He is quite convinced that high commodity prices are a function of anticipated China stimulus, of which we hear lots about, but don’t quite have a comprehensive degree of visibility about the whole of which.

For example, financing/credit data doesn’t look especially striking. Here’s the total monthly change in credit…

And here it is broken down by more detail, over a shorter time frame.

Nor does any other monetary aggregate, strike us as especially interesting, albeit we can see the M2 metric creeping up.

Anyway, in this world, the worse the current data, from lockdowns, from property sector corrections, the greater the expected investment out the other side.

We’ve shown plenty of graphs about how bad things look previously, so we won’t do so again here in the note.

But we can note that several commodity stocks have de-rated quite a bit over the past few months, as the China situation deteriorated, and so, for portfolio construction reasons, are happy to nibble modestly around a general sectoral underweight to metals and mining.

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