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Asia's Economic Doldrums May Have Just Ended

14 September 2013 in Trading Ideas

Remember those fears about slowing growth in China and the continued sluggishness in Japan?

Economic data out this week suggest it may be time for more optimism.

Let’s start with China: Over the weekend, the country said its trade growth picked up again in August, with exports growing 7.2% on the year. That was well above the 5.1% growth in July and beat economists’ average expectations for growth of 5.5%. In addition, the trade surplus widened to $28.6 billion from $17.8 billion the previous month.1

That news coincided with a report that China’s consumer prices climbed 2.6% in August from a year earlier. More importantly, perhaps, producer prices fell only 1.6%, which was narrower than both economists’ expectations and the 2.3% drop the previous month. The news was seen as a boost for the view that producer prices, which have been down for five straight months, may have reached their bottom in July.2

On Monday, it was a trio of strong reports that beat expectations: annual industrial output rose 10.4% in August, while retail sales increased 13.4%. Finally, China said fixed-asset investment surged 20.3% in the first eight months of the year.3

All of these numbers have predictions of an economic “hard landing” in a more precarious position. BofAML said in a research note on Tuesday that it now saw a “clear upside risk” to its 7.6% growth forecast for this year’s third quarter – and for its 7.6% GDP forecast for all of 2013.4

The strong data hasn’t been limited to China, however. Japan reported over the weekend that its economy expanded much faster than initially expected in the second quarter, adding to signs of a growing recovery in that country is finally taking hold in the wake of new aggressive monetary policies by Prime Minister Shinzo Abe and the Bank of Japan.5

The decision to award Tokyo the 2020 Summer Olympics also didn’t hurt the good feelings, and could conceivably work as another factor that drives the country’s spending this decade.

Unsurprisingly perhaps, these signs of turnaround have been a boon to the stock markets of both countries. Japan’s Nikkei has increased nearly 16% since mid-June, while the Shanghai Stock Exchange Composite Index has jumped nearly 20% since a plunge in late June.

asian fusion motifThe Asian Fusion motif has increased 6.1% over the past month. Since the motif’s creation in January 2013, the motif is up 7.7%. The S&P 500 has gained 0.3% in the past month and 14.7% since the motif’s inception date.

As most investors realize, a month of good data points doesn’t make a trend. However, the general pessimism surrounding the Asian growth story appears to have some objective reasons for receding.

1Mamta Badkar, “More Good News For China’s Economy,” businessinsider.com, Sept. 8, 2013, http://www.businessinsider.com/chinese-trade-data-shows-economic-rebound-2013-9, (accessed Sept. 10, 2013).

2Mamta Badkar, “Chinese Consumer Prices Rise 2.6%, In Line With Expectations,” businessinsider.com, Sept. 8, 2013, http://www.businessinsider.com/august-china-cpi-2013-9, (accessed Sept. 10, 2013).

3“3 Key Chinese Economic Indicators Just Beat Expectations,” reuters.com, Sept. 10, 2013, http://www.businessinsider.com/chinese-indicators-beat-expectations-2013-9.

4Joe Weisenthal, “Everyone Who Was So Focused On China’s Hard Landing Totally Missed The Big Story,” businessinsider.com, Sept. 10, 2013, http://www.businessinsider.com/everyone-who-was-so-focused-on-chinas-hard-landing-totally-missed-the-big-story-2013-9.

5Leika Kihara, “Japan’s Economy Is Growing Much Faster Than Expected,” Reuters, Sept. 9, 2013, http://www.businessinsider.com/japan-q2-gdp-revised-up-2013-9.