Allan von Mehren
Danske Bank A/S
- In another evidence that China is seeing a cyclical recovery, profit growth picked up in March. The annual growth rate went from -4.7% y/y in February to 11.1% y/y in March.
- This is likely both an effect of a) higher volumes as well as b) higher prices for Chinese companies. As the charts below shows producer price inflation m/m was the highest in three years in March. Also a rise in PMI manufacturing suggests that volumes gained momentum in March.
- Since producer price inflation is highly correlated to global metal prices and these increased further in April we look for a further rise in both profit growth and PPI inflation in April.
- China has a lot of big companies in the mining industry and these are getting a lot of relief currently from both higher prices and volumes. As we’ve argued lately we look for a further recovery of Chinese growth over the next couple of quarters driven by construction but also a boost to infrastructure spending and a turn in export growth.
- The pick-up in activity and higher profit growth should support Chinese equities and EM equities overall as Chinese demand is rising and commodity prices gain.
Industrial profits getting a lift from higher activity...
... as well as higher prices
Pick-up in metal prices pushing up PPI - more to come in April...
... as metal prices have continued higher over the past month
EM stocks to gain further on Chinese recovery over coming quarters
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