Daily Management Review

Investors Getting Positive About Chinese Economy Following Some Encouraging Signals


Investors Getting Positive About Chinese Economy Following Some Encouraging Signals
There are apparently some positive signs for the Chinese economy after the second largest economy of the world churned out some worry some indicators earlier this year.
Some experts are becoming more optimistic about the Chinese economy for 2019 following the rising possibility of a even a limited trade deal with the United States along with a host of stimulus for the economy announced by the Chinese authorities.
For the second part of 2018, the trade war with the United States dominated the trade scenario and consequently the economy of China which has also apparently hit the financial market and economy of the US also. Economists however are of the opinion that the impact has been more for the Chinese economy,
The ambiance that prevailed during the peak of the trade war has however undergone some change following the agreement for a 90 day truce in the trade war between US President Donald Trump and Chinese president Xi Jinping in December last year. Both the US and China described the recently held trade negotiations as positive and more talks are scheduled between the two parties. There are reports that the US is even considering the lifting of tariffs to arrive at a deal. All of these has created a positive sentiment and raised hopes of a possible trade agreement between the two warring countries. 
"The point is that both sides are now under a lot of pressure to get a deal done," Stefan Hofer, chief investment strategist at LGT Bank in Hong Kong, told reporters on Tuesday, calling it "just something that has to happen."
The best case scenario for LGT is the possibility of a trade deal between China and the US by the middle of 2019. However Hofer believes that right now is the best time to invest in the Chinese markets. "I think it's perfectly okay for investors to take on China exposure now in anticipation of that," he said.
It sees "increasing signs of momentum towards some type of interim deal" within this year, said political risk consultancy Eurasia Group in a note last week. the organization believes that the driver for that would be the wish of Trump to bring some stability in the markets and to ensure a trade deal that he can use for the presidential election the next year – 2020.
However that would not probably provide a complete solution for the issue. "The two sides have made only slight progress on the core structural issues at the heart of the trade dispute," Eurasia Group cautioned. But experts still believe that it would be a major breakthrough if there are no increases in existing tariffs and a reduction of tensions between the US and China. And that, in combination with the stimulus support for the Chinese economy, would help in the creation of a better outlook for the current year. 'Grease in the engine'
"Economic growth should stabilize as the government releases additional stimulus, including corporate tax cuts, credit easing, infrastructure investment, and looser real estate rules in lower-tier cities," IHS Markit said Friday in a note.
Optimism was also expressed by Ken Peng, investment strategist at Citi Private Bank in Hong Kong. "I think, ultimately, we'll see less worries about trade tensions this year," Peng told reporters on Thursday. He however there would still be pressure on some aspects of Chinese data such as exports even with a deal because of the impact of the early period of the trade war.
"We think this negativity, a lot of it, is coming from the payback for the front loading of exports ahead of tariffs last year," Peng said.
He however also added that the transition would be eased by China’s increased pump priming. "Liquidity has turned from targeted easing to broad general easing and the size is bigger," Peng said. "As we move into the second quarter, I think the effects of stimulus will start to more than offset the drags from trade and other slowdown(s)," he added.