Why does the performance of China’s economy alert investors?

The first part of the year saw consecutive rises in the S&P and the Eurostoxx. However, September reminded investors that the favorable scenario for a full recovery after the pandemic is not the only one possible.

The reflection of the stock markets in the last month has been the worst for S&P since March 2020. Some of them, such as Shanghai, benefited from the holiday closing at the end of the month, or the Nikkei, which has risen almost 5% , they have behaved better.

“But in unity, the MSCI in dollars shows a 4.3% drop in September, denoting part of the doubts that have arisen since July, but which have intensified in recent weeks.”, said Juan Carlos Ureta, Chairman of the Board of Renta4.

The growing concern of investors – he points out – in the first place, is the latent fear of rising inflation.

From the first months of the year, the rise in prices was considered temporary in its first approximation and was linked to the reactivation of the economy after the isolations.

However, the constant increases in raw materials, such as oil and gas, have convinced many that the rise in prices is not only being motivated by the opening of the economy, but there are structural elements.

“Among them, the lack of raw materials due to the lack of investment in production and exploration after years of low prices. Without sufficient investment, the supply is scarce, generating a rise in prices or bottlenecks ”, he adds.

Besides inflation, growth is also worrying. A large number of economics specialists conclude that growth peaks have been observed in the second quarter of the year, but now the figures will not be so good.

“Again, China is raising the alarm bells. The manufacturing PMI in September entered a contraction zone, falling specifically to 49.6. This bad data together with the real estate problems and some big technology ones, make us fear a really low GDP in the third quarter ”, he mentions.

It is true that, so far, the European and American PMIs for September have not been so bad, however, the one who contributes much more to global growth than anyone else is the Chinese economy, and an abrupt interruption will be noticed in Europe and the US.

It is inevitable to think of the seventies of the last century, when the western economy was led to stagflation, coincidentally due to the large rise in the price of oil, when a stagnant economy coexisted with high inflation.

In this sense, we are facing a scenario that is beginning to strongly worry investors, who note that abundant, cheap money and unlimited debt have their “dark side”.

Indeed, China anticipates the problems that could be overcome in the European and North American economies. However, a great difference between the situation of the 70 ‘that makes it possible to avoid a return to stagflation, is the technological revolution that the world is experiencing. Although it is not enough for the world to change alone. The financial foundations of this technological revolution cannot be built on gigantic mountains of debt, which, far from helping in the transition to the new green and digital economy, make it difficult by making it impossible for markets to do their job of rewarding resources efficiently. October is important, especially to notice the orientation of the Stock Exchanges in the final stretch of the year. The options are between remaining part of the “ideal” world in which they have lived until August or delving into the problems that were exposed in September, problems that China has been showing with some anticipation.

The Stock Broker specifies that volatility is expected to continue in the coming weeks, given the magnitude and complexity of the issues that have concerned investors in September.