China Economy: 2nd Quarter Was Grim. What It Means for Its Stock Recovery.

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China needs to address the worst economic growth since the epidemic in 2020. Advertisers need to focus on consumer health and debt growth to see if the recession can continue.

Many economists expect the real economic downturn due to the closure that led Shanghai and Beijing to halt its second phase and continue the crisis in the housing market. The corresponding expectation is a decrease of 2% GDP in the second quarter.

Economic growth has not been a problem in the Chinese stock market. The

iShares MSCI China exchange-traded fund
(MCHI) has risen 15% since the beginning of May when closure eased and Chinese policymakers vowed to put the economy ahead of 20.^th The Party Congress is ending the violence that has plagued investors for the past two years.

But some are concerned that China’s summit is in jeopardy. This is not to say that acceptable statistics do not indicate a decline. Acknowledging the collapse could be contrary to the Communist Party’s goal of avoiding wasteful spending on the global financial crisis, says Shehzad Qazi of China Beige Book. The rise in GDP, which makes for a bit more conservative, would say, Qazi says.

Instead, GDP could be the wrong number to look at. What businesses need to see is a signal that China’s debt growth is recovering and that consumers are willing to take advantage of it. Instead of GDP, economists see the overarching influence over spending and debt growth.

“The biggest indicator is debt growth; it is difficult to see a regular meeting in a business or home market unless you find a lot there, “says Arthur Kroeber, head of research at Gavekal via email.

Next up on the checklist: real estate sales, which will be announced in the next few weeks. Although stock sales were strong in June, many so far this month have been disappointing as credit growth is expected to rise sharply and there is still uncertainty about Covid’s new closure. For the economy to thrive – and for the stock market to be strong – analysts say long-term home and corporate lending should be on the rise.

Advertisers should also take into account the interest of consumers as solid cars – one of the metrics sold this week, says Derek Scissors, director of the American Enterprise Institute. Car sales rose last month but much of this month could give guidance if this was just a demand after the closure or if the need remained stable.

China’s other problem is that exports have boosted its economy but as fears grow in Europe and the US, it could lose momentum – and I continue to talk about multinational companies moving their exports to China could also halt long-term. -dictures of the export period, where Kroeber sees a negative change in attitudes among many countries in the last seven to eight months.

Many expect the economy to look good in the second half, although seeing limited opportunities China can achieve its 5.5% annual economic growth target. TS Lombard’s Rory Green expects significant construction support but it can only be stabilized instead of increasing growth. While Green thinks the worst has passed, he expects China’s recovery slows down – with the possibility of a Covid shutdown and a slowdown in the stock market that could lead to a boost or a slowdown in technical collapse.

Investors are warm. BlackRock’s Investment Institute this week said it had not intervened in Chinese stocks despite the resumption of work. Some of its concerns: The 2022 economic growth appears to be inconsistent with government demands and political concerns, including China’s relationship with Russia.

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Ideas for company Tencent Holdings

(700. HongKong) and

Alibaba Group

(BABA) this week, despite policymakers announcing in recent weeks that their technical turmoil was ending, they also suspended a recent meeting on the internet. “We have a new reminder that the government, not corporate governance, can decide how each company will operate,” says treasurer general Laura Geritz, who oversees Rondure Global Advisors. “Given the sheer weight of these stocks in the list, it’s over – soon.”

Although Geritz claims to be finding the best stock in China at the lowest price to provide security, he says the impending run-off could be difficult due to domestic investment companies.

Those looking to see if it is safe to enter may want to look beyond GDP for indicators that consumers want to use – and borrow. When they begin to turn, so does the market.

Write to Reshma Kapadia at reshma.kapadia@barrons.com