Global stock markets edged higher on Friday after the Chinese government reported that growth eased to its slowest pace in three years in the second quarter, leading investors to bet that policymakers would expand stimulus measures aimed at reviving growth of the world’s second-largest economy.
China’s National Bureau of Statistics reported that second-quarter growth slowed to an annualized pace of 7.6 percent—less than the first-quarter’s 8.1 percent expansion and right in the 7.5-7.7 percent range it had been expecting, according to a Bloomberg News report . In all, the report was something of a relief, as some had been expecting a lower number.
Investments focused on stocks and commodities rose on the news, reflecting expectations that lower interest rates and ramped-up government spending would be a shot in the arm for the global economy. The Chinese government has already been moving to reverse the trend—most recently last week by cutting official borrowing rates, and also by unveiling a slew of new spending programs.
Gold, frequently the beneficiary of easy-money central banking policies, was one of the most conspicuous movers early Friday, with spot prices jumping more than $20 from Thursday's closing futures price to over $1,583 a troy ounce, according to Kitco . The SPDR Gold Shares (GLD), the $63.52 billion bullion ETF, was up 1.4 percent to $154.64 a share.
The flip side of easy-money policies is that they weaken currencies and the fact that the WisdomTree Dreyfus Chinese Yuan Fund (CYB) was edging lower in the wake of the data was no surprise.
But the iShares FTSE China 25 Index Fund (FXI), a bellwether for Chinese stocks, was up 1.25 percent at $32.49, according to data on Google Finance.
FXI’s percentage move was roughly in line with that of the SPDR Dow Jones Industrial Average Trust (DIA) and the iShares S'P 500 Index Fund (IVV).
Nervousness Shines Through Suspicion
While some analysts quibble about the accuracy of data from China’s government and wonder if the pace of growth isn’t even weaker, everyone agrees that the prospect of a slowing Chinese economy is bad news.
A slowing expansion there threatens to further derail a global economy rendered vulnerable by Europe’s debt crisis, which has left much of the region in recession.
In fact, there’s something of a negative feedback loop that’s probably at play by now, with Europe’s weakness contributing to slowing growth in China and the U.S. and, now, China’s clearly slowing growth contributing further to Europe’s malaise and to economic head winds in the U.S.
The point is that the Chinese economy has been growing at an annualized pace of 10 percent since 2000, as the Wall Street Journal reported earlier this week, and the global economy in general has come to depend on that Chinese growth.
At about 6 a.m. Eastern time, Japan’s Nikkei was up 0.05 percent; South Korea’s KOSPI jumped 1.54 percent; the Shanghai Composite of mainland China stocks rose 0.02 percent; the Hang Seng in Hong Kong climbed 0.35 percent; and the S'P/ASX 200 in Australia increased 0.35 percent.
The Stoxx Europe 600 Index was meanwhile up about 0.8 percent, and U.S. stock futures were pointing to a higher open, with both markets also reacting to the report on China’s second-quarter GDP.
Other Affected ETFs
One ETF that got an outsized pop from the China news was the iShares MSCI South Korea Index Fund (EWY). It’s almost 2 percent higher on the day, though is down by about 2 percent over the past five days—an indication that economies closer to China are likely to feel any Chinese slowdown in a much more immediate way.
Also, the broad futures-based commodities ETF, the United States Commodity Index Fund (USCI), pushed about 1 percent higher to $59.74 a share— a clear sign that investors reckon that more aggressive monetary easing and fiscal stimulus plans by China will affect the entire world of raw materials.
Permalink | ' Copyright 2012 IndexUniverse LLC. All rights reserved
More From IndexUniverse.com
