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How to Invest in a Slowing China World


By Bryce Coward, CFA

Yesterday we gave three reasons why the stabilization seen in China over the last several weeks is just a cyclical pause before the next leg of the slowdown starts anew. Those reasons were that:

1) The current stabilization is almost entirely due to fiscal stimulus totaling about 2.8% of GDP, and that slower growth is in the offing as the fiscal stimulus turns turns into fiscal drag

2) The Chinese economy is in a structurally slowing pattern driven by the ongoing and inevitable slowdown, or even outright decline, in infrastructure investment – the driver of Chinese GDP growth for the last decade at least

3) Market driven prices for things hypersensitive to the level of Chines GDP growth (oil, copper, shipping rates) are all collapsing toward/have broken their cycle lows, indicating more slowing in China, not structural stabilization

The obvious question is then how one positions their portfolio in a world where China is on a structurally slowing growth trajectory. In an effort to not over-complicate things, let’s look at China from the 30,000 foot view. From this perspective we observe two things that will unfold over the next decade...