China Expectations Versus Reality
The recent, as in last 5 days of market losses around the globe ended with a strong rally today. The losses yesterday were slight indicating a bottom, even if only temporary, was nearing. The panic selling was over.
From the news I have digested over the last several months what is happening is projections are being revised to meet reality and this has popped the bubble. The claims by China that its growth had slowed to a mere 7% didn’t ring true. The claim that the party could manage its way to eternal growth is being refuted.
Is China really in an economic meltdown ? I don’t think so yet. There is a potential for that. But most of the collapse in market pricing is all built on a deepening acceptance that the growth projections are not sound. China growth may very well be flat, it may even be in a recession who can say. But the drop of several percentage points of expected growth will definitely ignite panic selling. Worse if people have serious doubts about the validity of the data they are getting. This is reminiscent of the problems we faced in the US when we found some rather large companies, auditors and others were in collusion to produce false data on a large scale.
For now I don’t think China is a “giant sucking sound” to use the cliche coined by Ross Perot. I think rather we are just adjusting our expectations to the new reality.