The economy has turned a corner. Passenger car sales in China rebounded 8.2% m/m in March. The y/y decline of 6.9% was the smallest since last August. Property prices also extended an impressive turnaround in March. The simple, unweighted average for China’s house price index was up 13.2% y/y, surpassing the two previous cyclical peaks (10.81% y/y, November 2016, and 9.70% y/y, December 2013).
Nevertheless, the rebound in economic indicators and the recovery in equity markets provides a window of opportunity. Now may be an opportune moment to tackle the acceleration in house price growth.
The Chinese Government has indicated that it wants to slow the rise in house prices. Both monetary and fiscal policy can and will be tightened later this year: that need not be bearish for the world economy, or stocks. The policy tweaks will be possible because the shift to high-tech services (aided by 5G), and other sources of growth (EVs), will accelerate.
Huawei has not been stymied by the trade spat between the US and China. Sales of 5G base stations and smartphones have continued to expand quickly. Revenues jumped 39% y/y in Q1. Net profit margins were up from a year earlier too.
Apple caved in and reached a licensing agreement with Qualcomm because of the challenge posed by Huawei in respect of 5G smartphones. Ironically, this new deal, which should allow Apple to launch a 5G phone next year, will stimulate consumer demand and, in turn, investment in telecoms equipment. This will, of course, benefit Huawei: the Chinese company has welcomed the ceasefire between the two US companies.
