Chinese stocks have plummeted in the last month, putting the country’s economy at risk of stalling as a “stagflation” risk rises.
The Hang Seng was trading around 11,660 as of Friday afternoon. Over the last year, the exchange was nearing 15,000, before falling on sour views of the economy and surging U.S. bond yields.
China’s economy shrank at its fastest pace in years in the final quarter of 2018, data showed on Wednesday, a bleaker assessment of the economy that could spark fears of an economic slowdown this year.
But this month, China reported a forecast-beating jump in its key trade numbers, a double-digit rise in exports of factory goods and an increase in car sales.
JPMorgan said in a note that the fourth-quarter decline in industrial production and retail sales points to a further decline in “economy-wide activity which can also reflect weaker corporate activity.”
Bond yields, which have recently surged, along with the cost of bank borrowing, suggest a more challenging world economy, the investment bank said.
The cost of five-year fixed-rate bank debt surged 54 basis points over the last month to 2.36 percent and 10-year bonds rose 81 bps to 2.81 percent.
Chinese bonds are currently “in great demand but history suggests that they do not care for the ‘peaks and troughs’.”
The note said that next month’s release of economic data on industry, retail sales and fixed-asset investment could provide “important insights” for the economy in the first half of the year.