China Chartbook – 2Q20: Macroeconomics & Market Strategy

KraneShares
By July 28, 2020 13:19

China Chartbook – 2Q20: Macroeconomics & Market Strategy

  • We foresee modest global recovery in 2H20, with China growth outpacing that of the US & EU. We expect China GDP growth to rebound to approximately 6% YoY in 4Q20, but the impacts of the U.S. COVID-19 continuing outbreak remain a concern.
  • We foresee an “atypical recovery”, since supply is expected to recover more rapidly than demand, while a typical up-cycle tends to be led by demand. The slowdown during “containment” was driven by temporary restrictions, relaxation of which may boost supply more instantaneously while demand may take more time to normalize. Corporations and residents are forced to resume operation/work and cut expenditures as their debt has risen rapidly.
  • With regards to policy responses, the US relied more on fiscal relief while China has leveraged more heavily on monetary expansion to date. M2 growth accelerated in both China and the US. The main growth driver in the US was fiscal expansion (i.e. quantitative easing by the Fed), while the key contributor in China was credit growth. Unlike the US, China still has room to cut rates, although it is not desirable to rely too heavily on monetary expansion as debt-servicing burden would likely dampen growth in the next 4–6 quarters, in our opinion.
KraneShares
By July 28, 2020 13:19

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