Plenty of moving parts in China
China fears have finally catalyzed, something I was warning about on Sept 2. It’s been pinned on our sidebar ever since.
The story today is the same as it was than. I wrote then about the risks around Evergrande and warned it could “be the domino that topples the Chinese economy and market enthusiasm elsewhere.”
The point then, and now, is that it’s not just about Evergrande. The real risk is that China is aiming to realign its real estate sector, its economy and indeed its culture.
Evergrande can be contained but a push towards ‘common prosperity’ would be a signal that growth is no longer the priority it’s been for the past 25 years. It was the north star for Chinese leadership in that time and if it’s de-emphasized it will ratchet down the growth trajectory of the entire world.
So while global stocks are down 1-3% today, we’ve hardly priced in anything remotely along those lines.
At the same time, it’s not in China’s interest or anyone else’s to pull the rug out from the economy. That’s why this week isn’t about the FOMC. It’s about the PBOC, who will decide on the LPR on the same day. A cut there with some patience from the Fed could shore up sentiment for now.