Optimism over the Chinese economy dimmed sharply in April amid slowing growth, a worsening outlook for exports and rising stock markets that have prompted many to warn Chinese equities are becoming overvalued, according to ZEW.
The ZEW indicator of economic sentiment for the Chinese outlook over the next year fell 11.8 points to 2.6 points in April, hovering just above negative territory. The assessment of the current state of the Chinese economy fell 15.1 points to minus 10.3, placing it far below the 33.8 points of the US assessment but well above the assessment for Europe, at minus 31.1.
‘The values from April considerably undercut the indicator’s long-term average of 11.0 points, demonstrating that the indicator’s mid to long-term downward trend, which has prevailed since fall 2013, is continuing,’ ZEW says in a press release. ‘One possible reason for the expected slowdown of the Chinese economy is the slightly lower growth in Chinese exports than was forecast. Looking at the different regions, the economic downturn is expected to have a particularly large impact on Shanghai.’
China’s official economic growth rate slowed to 7 percent in the first quarter as industrial output growth slowed to a seven-year low of 5.8 percent, according to data released in April by the Chinese government. At the same time, the Shanghai Stock Exchange Composite Index has climbed 28 percent so far this year to 4,229 points as of Wednesday’s close. In the past year, the index has jumped 112 percent.
Despite the slowdown and predictions of a further drop in the growth rate next year, Chinese stocks are expected to continue to climb, according to the ZEW survey. The Shanghai Stock Exchange Composite Index is expected to climb to 4,629 in three months and 4,961 in 12 months.
