In today’s briefing:
- China: Downward Pressures Evident; Policy Response Falling Short
- Chilean Peso Is a Buy if One Can Stomach the Volatility
China: Downward Pressures Evident; Policy Response Falling Short
- Growth in GDP, industrial production and investment was stronger than expected in 1Q22. But, consumption was severely hit and the portents are for sharply slower growth in 2Q22.
- Home sales contracted despite easier credit & local govt support, evidence of impaired consumer psychology. A negative feedback loop is developing: poor household sentiment impacts property demand & thus investment.
- Policy response is critical yet appears to fall short of what is needed to stabilise growth. The authorities favour supply-side measures e.g., tax cuts over demand boosts e.g. cash grants.
Chilean Peso Is a Buy if One Can Stomach the Volatility
- The Chilean peso has performed well this year but it has still lagged behind its peers and the broad EM currencies on a longer horizon.
- The currency has been weighed down by high oil prices, a dovish turn by the central bank, and concerns around the Constitutional Convention and the possibility of new pension withdrawals.
- While these concerns are valid, my view is that the currency should outperform, albeit with high volatility, due to its high carry, cheap valuations, and eventually, diminishing political noise.
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