Sometimes you just can’t win.
China beat expectations and reported its economy grew 7% in the second quarter. Analysts had expected gross domestic product growth of 6.9%. However, the mainland stock market fell on the news.
Monthly activity data also beat expectations across the board, with factory output hitting a five-month high, said the National Bureau of Statistics on Wednesday.
“There is growing evidence of an improvement in the wider economy.”
The statistics bureau described the nascent recovery as “hard won” and noted it was driven primarily by an increase in domestic consumption, which produced 60% of China’s economic growth for the first half, compared with 35.7% for capital formation and 4.3% from net exports, reported Reuters. Last year, consumption added 51.2% to GDP growth.
This agreed with the recent independent China Beige Book survey that said growth in the interior provinces was driving a broad-based recovery for the quarter.
Despite the good news, the Shanghai Stock Exchange Composite Index slid 3% to 3,806 and the Shenzhen Stock Exchange Composite Index lost 4.2% to 2,059. The CSI 300, which tracks the 300 largest stocks on the market, fell 3.5% to 3,967 and the small-cap ChiNext Price Index tumbled 5% to 2,590.
“Investors liquidated their positions as the GDP data failed to impress,” Steven Leung, a director at UOB Kay Hian in Hong Kong, told Reuters.
With growth slowing in trade, investment and domestic demand, China’s economic growth is down from 7.4% last year. But considering the correction in the stock market last quarter, in addition to the property downturn, factory overcapacity, high levels of debt and deflationary pressure, the fact the economy remained on an even keel and came in as expected is to be commended.
There are a few reasons for why the stock market may have fallen. Markets are typically forward looking indicators. As Wall Street often says, “Buy on the rumor; sell on the news.” So, if the government numbers come in as expected, take your profits.
Another reason could be that a large number of stocks resumed trading on Wednesday. This is the first opportunity in days that investors in those stocks have had a chance to cash out to pay margin calls, or just take profits. Let’s see if this settles down tomorrow. Expect a similar drop when the remaining 25% of the market still halted starts trading.
“We must also take note that domestic and the external economic environment remains complex, and the global economic recovery is tortuous and slow,” said the statistics bureau.
Even so, bureau spokesman Sheng Laiyun predicted further improvements in the second half as previous policy measures, including several interest rate cuts, take effect, reported Reuters.
“The resilience of retail sales in June is a further encouraging sign that downside risk, while not negligible, is receding, despite recent equity-market volatility,” Andrew Colquhoun of Fitch Ratings told Reuters, adding he expects an improvement in the rest of the year.