Investors gave the Chinese economy the benefit of the doubt this morning, cautiously interpreting a mixed bag of data as demonstrating that the world’s second-largest economy may have troughed, helping stock markets stay firm as a two-day European leaders' summit gets under way in Brussels.
Although China’s GDP growth for the third quarter of 7.4% marks the sixth quarterly decline in year-on-year growth rates, retail sales, industrial production and investment all improved, the official stats showed.
The in-line GDP figure and other data from the National Bureau of Statistics was taken by economists as a cautious sign that the economy has now bottomed out, potentially dulling one of the market’s biggest fears – that demand from China will crash.
China’s Premier Wen Jiabao also said that China’s GDP growth has started to stabilize and show some positive changes.
Miners take solace from fading 'hard-landing' fears
In London, mining stocks responded accordingly, with Vedanta (VED.L) leading the gains, up 2.2% to 1,172p. Kazakhmys (KAZ.L) rose by 2.1% to 776%, ENRC (ENRC.L) was 1.5% higher to 357p and Anglo American (AAL.L) gained 1.4% to 1,932p. The wider FTSE 100 – which has been rallying all week – was flat at 5,905, following gains in Asia and the US overnight.
On the downside for investors, though, the Chinese economic numbers do reduce the probability of more stimulus from the Chinese authorities. ‘As the bottoming-out is largely confirmed, the chance of another interest rate cut by the year end from the People's Bank of China is probably close to zero now. Also, there is certainly no rush to announce any investment stimulus package,’ commented Yao Wei of Societe Generale.
Meanwhile, Alistair Thornton of IHS cautioned against ‘unbridled optimism’. He wrote: ‘Those fearing a hard-landing will be able to sleep a little better tonight, but those positioned for a clear recovery might be disappointed.'
Market gains were capped by uncertainty ahead of the European Council meeting in Brussels that starts today. Analysts are, however, not expecting fireworks, with European officials insisting that neither Spain’s potential bailout nor Greece’s progress will be discussed. Spain will remain in the market’s gaze, however, as it tests investor appetite with bond auctions this morning.
The euro was 0.2% lower to $1.3088, while European markets were broadly flat.
Of UK stocks, Mothercare (MTC.L) was also making gains, after its second quarter trading statement showed better than expected growth in its home UK market, while Europe dragged on overseas growth.
Peter Smedley of Charles Stanley Securities said Mothercare was making ‘steady-as-she-goes’ early progress against the group’s new strategy outlined in May.
Freddie George at Seymour Pierce retained his ‘sell’ recommendation, warning that the company was ‘not an easy fix’ and that ‘it will be difficult to make Mothercare relevant again for the modern mother as it has strong competition from Amazon and the supermarkets’.
Shares – which have rocketed higher so far this year after almost two years in decline – were up 7.5% to 250p.
Jupiter rides out ‘choppy quarter’
Shares in Jupiter (JUP.L) were among the top gainers on the FTSE 250, up 2.8% to 271p after the fund management firm reported that assets under management (AUM) had hit a record £25 billion, helped by cautious investors putting their money into Jupiter's bond funds.
Speaking to investors, chief executive Edward Bonham Carter said flows into mutual funds had played a dominant role, helping Jupiter to navigate what was a choppy quarter for the broader asset management industry.
Stuart Duncan of Peel Hunt reckons the shares are a ‘buy’. He commented: ‘The stock’s current rating is a premium to the sector, but we consider this is deserved, given the attractions of the business model.’
Man Group (EMG.L), the hedge fund that has seen its share price decline since 2007, was on the way down again today after reporting more client outflows. The group lost $2.2 billion in the quarter ended 30 September 2012, however total funds under management rose by 14% to $60 billion.
Analysts at Canaccord couldn’t get enthused by the statement. Retaining their sell recommendation, they wrote: ‘Given the lack of revenue accretion catalyst, we still remain negative on the stock. To see valuation uplifts, one would need to be bullish on performance fee revenues for the forward years which we view as still premature at this stage.’
Shares in Man dropped to the bottom of the FTSE 100, down 4.4% to 88p.