China credit flows

The China credit flows data, released over the weekend; it was indeed weak.

M2 (money) is moving up, but money and credit are diverging, as others have noted, suggesting that deposits are simply piling up, rather than being put into productive use across the economy.

For iron ore, at a very naïve level, simply lining up these 1st and 2nd derivatives would suggest some support to iron ore pricing.

Very difficult to know how much faith, if any, to place in such a set.

Betting that policy intervention will save the property sector has generally been quite a reliable trade, equally, the fairly consistent stance of policy suggesting that growth will only be prioritised if it is “quality growth”, would weigh against it.

And today’s monthly data deluge on retail sales, fixed asset investment, industrial production would assuredly continue to put you in the “bearish” interpretation camp for how the economy, and cyclical sectors like property, are fairing.

We default to our view that many commodity prices remain materially elevated relative to pre-pandemic levels, and that a Fed (amongst other central banks) determined to wring excess inflation out of the system would be a reason to remain underweight, in addition to the above mentioned concerns over the health of the property and infrastructure market.

We should also note that China cut the key lending rate again, today, the first such cut since the start of the year.

We have AWC, IPL, and BHP in our direct equity portfolios, which feels like “enough” of an exposure (they have different roles to play, but that is not the point of this note).

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