US media said that for decades, European stock markets have followed the pace of Wall Street, but now China’s influence on the direction of European stock markets is becoming increasingly greater.
According to a report on the US “Wall Street Journal” website on February 17, the European economy is accelerating, but its rising stock market may also illustrate the development momentum of the Chinese economy. Shares of European companies with the closest ties to the Chinese economy have significantly outperformed their peers, helping the MSCI Europe index – based on a basket of stocks in 15 European countries – rise more than 20% from its February 2016 lows.
AccordingtoDeutscheBank’sanalysis,EuropeanstocksmostcloselyrelatedtotheChineseeconomy(suchasminingcompanies,machineryandequipmentandothercapitalgoodsproducer)hasoutperformedthebroaderstockmarketby30%overthepastyear.SectorsleastrelevanttotheChineseeconomy,includingtelecommunications,retailandpharmaceuticals,performedtheworst.
Fordecades,EuropeanstockmarketshavefollowedWallStreet’slead,butnowChinaisincreasinglyinfluencingitsdirection.”ThisistheyearoftheChinatrade,”saidWolfvonRotberg,astrategistatDeutscheBank.p>
ItistruethattheriseinEuropeanstockmarketshasalsobenefitedfromtheimprovementintheeconomiesofEuropeandtheUnitedStates.LastyeartheeurozoneeconomykeptpacewiththeU.S.economyforthefirsttimesince2008,whiletheregion’s unemployment rate fell to a seven-year low.
According to estimates from the European Commission, the European economy may grow by 1.6% this year. A majority of fund managers surveyed by Bank of America expect economic growth in Europe next year to Inflation will accelerate.
That has renewed investor demand for European stocks, although they are also worried that upcoming elections in France and the Netherlands may bring some instability.
However, most of the rise in European stock markets cannot be separated from the support of China.
According to a US financial data software company, European listed companies only derive 5% to 6% of their revenue directly from mainland China. But judging from its outsized impact on global economic cycles, commodity prices and demand for risk assets, China’s impact on European companies The influence is much greater.
The circuit breaker in China’s stock market in early 2016 and investors’ concerns about the depreciation of the renminbi caused European stock markets to plummet, which also showed the relationship between the two. The Stoxx Europe 600 stock index fell about 17% in the first six weeks of 2016 – more than double the index’s decline after the Brexit vote – amid concerns that China, the world’s second-largest economy, is on the verge of an economic downturn. .
But China’s economy appears to have stabilized, growing by 6.7% in 2016. China’s producer price index (PPI) reached a five-year high in January 2017 after years of weakness. At the same time, China’s manufacturing industry has grown for six consecutive months. Analysts said this provided support for demand for European machinery and equipment, causing European stocks that are more sensitive to the Chinese economy to rise.
Paul Markham, director of the British Newton Investment Management Company, said that thanks to China’s economic stimulus plan, German industry and other sectors have achieved particularly outstanding results in the past year. “Europe is more of an economic follower,” he said. Europe needs economic growth in places like China and the United States to drive its economy and stock markets higher.
The European mining industry was the region’s best-performing industry over the past year. Expectations of demand from China have sent metal prices sharply higher, also boosting the industry. Copper futures are up about 30% compared with a year ago, and iron ore futures have also climbed to multi-year highs.
For most metals, China accounts for more than half of global demand, according to Standard & Poor’s. The UK’s FTSE 350 mining index is up 145% from its lows a year ago. In comparison, the broader FTSE 100 index rose 32%.
Companies with direct revenue transactions with mainland China also performed well. For example, luxury goods maker Louis Vuitton Group recently pointed to China as one of the reasons for its 14% jump in net profit in the second half of 2016. The company’s stock price is up 31% compared with last year.
Caroline Vincent, head of investment at Cavendish Asset Management in the UK, said: “Although it is silent, it is clear that China’s impact on (European stock markets) exceeds that of the United States.”
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(Editor: DF207)
