A look at China's industrial profits and the latest global markets movements

CGTN Europe

CGTN Europe spoke to Joshua Mahony, Chief Market Analyst at Scope Markets.

Transcript

00:00And let's get more on all of this and what's moving the markets with Josh Mahoney, Chief Market Analyst at Scope Markets.

00:07Josh, you're welcome back to the program. Always good to see you. Thank you so much.

00:10So, first of all, these Chinese stock markets getting a big boost, it seems, from the industrial profit numbers.

00:17Yes, certainly. I mean, this is a good news story, undoubtedly.

00:20There's been a lot of fear about what's going to happen with the US-China trade spats

00:26essentially knocking sentiment within some of the producers within China.

00:31But notably, what we're seeing here is, of course, a significant ramp up in profits.

00:36And remember, when you look at company earnings, for example, you see the revenue side of things

00:41and then the profit side of things. And the profits generally come down to the margins.

00:44What this has come as a result of is the squeeze from central governments in terms of the overproduction of many of these manufacturers

00:52and the price wars that have been underway, if we see a minimization of those or a dampening of that price warden,

00:58you see improved margins and improved profitability, which is exactly what we're seeing here.

01:04And how sustainable, Joshua, do you think the current bull run is?

01:08Well, as you've alluded to, a decade-long high that we're seeing in terms of the Shanghai composite,

01:14notably a four-year high for the Hang Seng.

01:16Remember, the Hang Seng, heavily invested by international investors.

01:19Shanghai, more so a domestic focus.

01:22So certainly there is a feeling that we're seeing an increased confidence after many years of some jitters

01:29around the credit market, around the real estate sector.

01:32It feels like the domestic market is really picking up steam.

01:35And from an AI perspective, globally, we're seeing that the value may be within the Chinese AI play

01:41rather than just the U.S. ones because of the high multiples we're seeing in that area.

01:46So I still think that there could be plenty more to go.

01:49Okay, let's switch over to the U.S. markets now.

01:52We can expect some new highs, can't we, this week?

01:56Well, we've already seen them today.

01:57We've seen the S&P 500 hitting a record high, the NASDAQ leading the way.

02:01Remember, the NASDAQ is the kind of market, very tech-focused,

02:06that's going to lead the way as you see rate cuts.

02:09But also this week, of course, we've got earnings for five of the MAG7 names coming out as well.

02:15So the possibility of perhaps rare earths flowing back in their direction,

02:20there's plenty of good news at the moment that's leading equity markets,

02:24in particular the big tech names, higher.

02:27The Nikkei also breaching 50,000 for the first time this week.

02:30Exactly. Yeah, I mean, this has been the big, big runner recently in terms of Japanese stocks.

02:37It seems like every time I look at the Nikkei, it's up another 2% on a daily basis.

02:41This comes after we have seen a new prime minister coming into play.

02:46She has come in on the ticket of being a lot more expansive when it comes to fiscal policy.

02:50Now, they might have to rein things in, inflation's elevated,

02:54and the Bank of Japan might hike rates soon enough.

02:57But certainly markets at the moment focusing more on that expansive fiscal policy

03:02from the new prime minister, and that's why we're seeing stocks on the rise.

03:05Right, you mentioned the BOJ, a heavy week of other central bank meetings as well, isn't it,

03:09with the Fed and the European Central Bank, the Bank of Canada as well.

03:12What do you think the key message from policy makers is going to be?

03:15Yeah, exactly. Four of the big central banks reporting this week,

03:20two of them expected to cut rates.

03:22That's the Bank of Canada and the FOMC.

03:25A pause from the ECB.

03:27They're probably going to reiterate that they're pretty much done now when it comes to easing.

03:30And then the BOJ side of things, like I said,

03:33there's a good chance that we do in the coming meetings see them raising rates.

03:36So they're all kind of moving in different directions.

03:39Ultimately, it's always a case of being data dependent.

03:42Well, the U.S. doesn't have that much data.

03:43But certainly that's always going to be the narrative.

03:47But certainly it's interesting because you have them all moving in different directions.

03:51So from an FX perspective, it does provide significant volatility.

03:56And finally, just a word on European stocks, modestly higher.

03:58What's holding back stronger momentum there?

04:02Well, look, they've seen a significant boost, many of them, most notably the DAX,

04:07off this idea that we're going to see increased infrastructure spending, increased defense spending.

04:11But at some point, that boost sort of runs out and you realize that you're sort of just investing in an area that's not particularly high growth.

04:18They don't have the big tech names to rely on that the U.S. has.

04:23And certainly there's confidence returning to the U.S.

04:26So when it comes to investing in companies sort of in the English speaking world,

04:31a lot of the time you just generally go with the U.S. over European stocks.

04:35And certainly with the sort of resurgence, some sort of resurgence of the U.S. dollar,

04:39again, that sort of reiterates that narrative.

04:42Josh, always great to get your insights.

04:44Many thanks indeed.

04:45Joshua Mahoney, Chief Market Analyst at Scope Markets.

04:48We'll see you next time.

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