The big news out of China is its decision to end its one-child policy. For investors, however, the news is that the process of re-balancing from financially driven infrastructure growth to household and consumer led growth continues.
A couple of data points came across my desk that confirms this view. First, Capital Economics noted that the Chinese job market remains tight, which reinforces political stability and takes pressure off the urgency for economic growth at any price (via Ambrose Evans-Prichard):
In addition, I recently referenced a couple of pairs trades (PowerShares Golden Dragon China Port (N:PGJ):iShares China Large-Cap (N:FXI) and Global X China Consumer (N:CHIQ):Global X China Financials (N:CHIX)) which bought baskets of Chinese consumer oriented stocks and shorted Chinese financials (see Two better ways to play Chinese growth). Both of these pairs indicate the ascendancy of the consumer sector.
As we await China's PMI release later today (Sunday), keep these points in mind should the data come in below consensus. Even if the growth outlook were to disappoint, growth is shifting from "bad" value-destroying growth to "good" consumer led sustainable growth. So don't freak out.
Disclosure: Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd. (""Qwest""). This article is prepared by Mr. Hui as an outside business activity. As such, Qwest does not review or approve materials presented herein. The opinions and any recommendations expressed in this blog are those of the author and do not reflect the opinions or recommendations of Qwest.
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