• Inflation still well contained. China’s annual inflation rate rose from a 30-month low of 1.8 per cent to 2.0 per cent in August, in line with forecasts. Over the month inflation rose by 0.6 per cent after a 0.1 per cent lift in July. Food prices rose by 1.5 per cent in August while non-food prices rose just 0.1 per cent.
• Business inflation (producer prices) fell by 0.5 per cent in August after falling by 0.8 per cent in July. Producer prices are 3.5 per cent lower than a year ago – a 34-month low.
• Data supports stimulus moves. The latest data supports the decision by Chinese authorities to approve infrastructure projects valued at US$157 billion.

What does it all mean?

• Effectively the latest economic data is ancient history. Recognising the economy needs a kick along, Chinese authorities have approved new infrastructure projects, such as highways, ports and airport runways, valued at US$157 billion. While positive for Chinese businesses and commodity producers in Australia, it won’t assist with the longer-term goal of shifting economy-wide spending away from the industrial sector to consumers.
• Inflation is under control with the only factor boosting prices in the latest month outside authorities’ control – namely food. So Chinese policymakers can afford to cut interest rates or reduce reserve requirements in coming months if growth continues to stagnate.
• The Chinese policymakers are adopting a softly, softly approach to economic stimulus. During the global financial crisis in 2008, China launched a 4 trillion yuan (US$630 billion) stimulus package. While that had the desired effect of insulating the Chinese economy (and to some extent Australia) from the crisis, the concern is that it may have been too much – leading to some over-heating of the property sector.

What do the figures show?

• The annual rate of consumer price inflation rose from 1.8 per cent to 2.0 in August, in line with expectations. Over the month inflation rose by 0.6 per cent, up from forecasts centred on a 0.5 per cent increase and up from a 0.1 per cent gain in July.
• Food prices rose by 3.4 per cent over the year to August (2.4 per cent in July) while non-food prices rose by just 1.4 per cent in the year to August (1.5 per cent in July).
• Producer prices (business inflation) fell by 0.5 per cent in August after falling by 0.8 per cent in July. Producer prices are 3.5 per cent lower than a year ago – a 34-month low. The annual rate of producer price inflation peaked in July 2011 at 7.5 per cent and has been declining since.
• Industrial output expanded at an 8.9 per cent annual pace in August, down from 9.2 per cent in July and below forecasts centred on a result near 9.1 per cent. Production is growing at the weakest pace in more than three years (May 2009) and well off the highs of 20.7 per cent annual growth in January/February 2010.
• China’s urban fixed asset investment, such as spending on roads and power plants, grew at a 20.2 per cent in 2012 to date (January – August), below forecasts (20.4 per cent) and down from 20.4 per cent in the seven months to July.
• Retail sales grew at a 13.2 per cent annual rate in August, up from 13.1 per cent in the year to July and in line with forecasts.

What is the importance of the economic data?

• China’s National Bureau of Statistics releases its monthly economic statistics around the 10th of each month. Quarterly GDP data is released around the 16th of January, April, July and October. China is Australia’s largest trading partner and changes in the Chinese economic have major implications for the Aussie economy.

What are the implications for interest rates and investors?

• Chinese policymakers are doing what they have to, to support their flagging economy. China can’t rely on a fast revival of European, Japanese or US economies, so effectively it has to provide the boost that the world needs.
• The slowdown of the Chinese economy doesn’t appear to be gathering pace, but there are only tentative signs of growth bottoming out. The new infrastructure program will go some way in ensuring that the economic slowdown is arrested and clearly it is positive for Australian mining and energy firms. The only negative is that the boost to the Chinese economy has boosted the Aussie dollar, making it more difficult for Aussie companies.
• The new infrastructure program should ensure that the Australian Reserve Bank stays on the sidelines for a longer period.

The post Data supports new Chinese spending plans appeared first on AdviserVoice.

Principal Global Investors was awarded the QFII designation in January 2012. The $150 million quota will be directly invested into the local China A-share markets. The capability will be offered as a Qualifying Investor Fund domiciled in Dublin, Ireland, which will be available to all qualifying non-US institutional investors.

Jim McCaughan, CEO of Principal Global Investors, said, “Being able to invest directly in the China A-share markets is a valuable and highly sought-after privilege. We are pleased to have developed a pooled fund that will provide clients a means to participate in one of the fastest-growing economies in the world. Despite the recent slowdown in growth, China continues to be an area of increasing focus and opportunity for sophisticated institutional investors.”

Principal Global Investors’ China strategy is supported through its regional headquarters in Singapore, a regional office in Hong Kong, the global headquarters in Des Moines, Iowa, and coordinated through a representative office in Beijing. The investment team responsible for the capability is located in Hong Kong, Singapore and the United States.

The QFII license and quota represent the next step in The Principal’s ongoing involvement in China, an effort that dates back to 1994. In 2005, The Principal established a joint venture with China Construction Bank, the second largest commercial bank in China. The joint venture, China Construction Bank-Principal Asset Management (CCB-PAM), manages both equity and fixed income products for local clients.

Principal Global Investors will engage CCB-PAM as a consultant in order to benefit from CCB-PAM’s knowledge of evolving macro-economic news and political events, and the potential impact on the capital markets. This engagement does not impact the investment decision-making process of either firm.

Tony Chu, portfolio manager with Principal Global Investors, added, “For those investors fortunate enough to access them, the China A-share markets currently offer one of the most attractive investing opportunities in the world. Even with the recent deceleration, China’s GDP growth is still among the strongest in the world, and is now showing signs of stabilizing.

“In fact, temporary weakness should be viewed as a good opportunity for long-term oriented institutional investors to enter the China A-share markets. The A-share markets also provide a diverse and rich opportunity set not available to most global investors through the Hong Kong and offshore listed markets.”

The post Principal Global Investors approved for $150 Million QFII quota appeared first on AdviserVoice.