Shocking Numbers from China; What Do They Mean for You?
Have you read or heard the recent economic data from China? Chinese exports for September grew 9.9% from the same period last year, almost double what the investment community expected.
The Chinese economy is extremely dependent on exports while it’s slowly developing its domestic economy. To get a better gauge of global economic growth, if China’s exports are indeed improving, then some economies around the world also must be improving, as the Chinese economy has grown to become a significant part of the global economy over the past decade. China makes up a large portion of many industries, and supplies numerous products to many parts of the world. Regardless of what one thinks about the Chinese economy, there is no question that it has a large influence on worldwide economic growth.
The European Union (EU) is a disproportionately large and important destination for the Chinese economy. With economic growth anemic within the EU, it was no surprise that exports to the Union fell 10.7% in September. This makes the overall increase of 9.9% that much more startling. It means that economic growth outside of the EU appears to be far stronger than anyone thought it would be so far.
Exports to America were up 5.5% for the September period as compared to year-ago levels. Neighboring South East Asian countries saw the biggest jump in exports at 25.5% for the month. This included Taiwan, up 19.9%, and South Korea, up nine percent. (Source: “China Sept. Exports Jump 9.9%, Imports up 2.4%,” The China Post, October 14, 2012.)
We will hear shortly from government officials regarding gross domestic product (GDP) numbers for the Chinese economy. Most analysts are aware that the Chinese officials do massage the GDP data; however, data regarding purchases by other nations are far more credible sources of information. This certainly should open one’s eyes to the fact that other areas of the world, including America, are on the verge of re-igniting economic growth.
Chart courtesy of www.StockCharts.com
As always, the markets lead economic growth. Looking at history, you’ll notice that the market has always been six to 12 months ahead of actual shifts in economic growth. This chart represents an exchange-traded fund (ETF) for the Chinese market that has clearly broken its downtrend, as one can see. With the market trading above its 200-day moving average (MA), it certainly is indicating that economic growth is far stronger than many people believe.
The most important thing for investors to realize is that the absolute number is not as important as the way in which the data is leaning. This means that if data, or corporate earnings, beat expectations, this is a bullish sign. Conversely, if data points consistently miss expectations, it is a bearish sign. Not only was this export data better than expected, but it was almost twice as good. This is something that should certainly open one’s eyes to the possibility that economic growth in 2013 might be stronger than consensus.