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Pervalle Global Blog - China Stimulus: Don't Hold Your Breath

March 2019

posted by Pervalle Global Macro Fund
506

The credit situation in China over the past few months has increasingly concerned us given the swift deterioration in three of the main four credit buckets, and suspicious characteristics of growth in the fourth – such as large increases in bill financings. We are less worried that a severe credit crunch is on the near-term horizon, but nervous that China will not be able to expand credit at a sufficient rate to drive both domestic and global growth. If our assumption is correct, China’s domestic data, as well as the global PMI, will continue to move lower until at least Q419. This will leave many market participants off-sides, as the consensus view is that China is materially increasing stimulus, leading to a bottom in the economic data. We find evidence proving the opposite is true.


In October, we put out a piece that argued there was a strong probability that Chinese M1 growth would turn higher between November and January given our leading indicators, which would inflect global growth higher in 2H19 as M1 leads by 9-12 months. We referenced China’s RRR cuts as a catalyst for higher M1 growth based on its four-month lead, as shown below. Four months later, we have still not seen China's M1 turn higher or stabilize, which may be an indication that China’s credit transmission mechanism is stalling or no longer working.


The entire article can be viewed here.


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ALL ALPHAMAVEN CONTENT IS FOR INFORMATIONAL PURPOSES ONLY. CONTENT POSTED BY MEMBERS DOES NOT NECESSARILY REFLECT THE OPINION OR BELIEFS OF ALPHAMAVEN AND HAS NOT ALWAYS BEEN INDEPENDENTLY VERIFIED BY ALPHAMAVEN. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. THIS IS NOT A SOLICITATION FOR INVESTMENT. THE MATERIAL PROVIDED HEREIN IS FOR INFORMATIONAL PURPOSES ONLY. IT DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY INTERESTS OF ANY FUND OR ANY OTHER SECURITIES. ANY SUCH OFFERINGS CAN BE MADE ONLY IN ACCORDANCE WITH THE TERMS AND CONDITIONS SET FORTH IN THE INVESTMENT'S PRIVATE PLACEMENT MEMORANDUM. PRIOR TO INVESTING, INVESTORS ARE STRONGLY URGED TO REVIEW CAREFULLY THE PRIVATE PLACEMENT MEMORANDUM (INCLUDING THE RISK FACTORS DESCRIBED THEREIN), THE LIMITED PARTNERSHIP AGREEMENT AND THE SUBSCRIPTION DOCUMENTS, TO ASK SUCH QUESTIONS OF THE INVESTMENT MANAGER AS THEY DEEM APPROPRIATE, AND TO DISCUSS ANY PROSPECTIVE INVESTMENT IN THE FUND WITH THEIR LEGAL AND TAX ADVISERS IN ORDER TO MAKE AN INDEPENDENT DETERMINATION OF THE SUITABILITY AND CONSEQUENCES OF AN INVESTMENT.