JPAM_logo
  • Funds

    Fund Listing

    • Fund Explorer
    • Fund Managers
    • Fund Documents

    Featured Funds

    • Multi Income Fund
    • Asian Total Return Bond Fund
    • China Bond Opportunities Fund
    • Income Fund
  • Insights

    Market Insights

    • Market Insights Overview
    • Guide to the Markets
    • Weekly Market Recap
    • On the Minds of Investors
    • Multimedia

    Portfolio Insights

    • Portfolio Insights Overview
    • Long-Term Capital Market Assumptions
    • Global Asset Allocation Views
    • Global Fixed Income Views

    Retirement Insights

    • Retirement Insights Overview
    • Principles for a Successful Retirement
    • Building Better Retirement Portfolios
    • Are you letting volatility derail your retirement plan?
  • Investment Ideas
    • Managing Volatility
    • Growth Strategy
    • Income Strategy
    • Retirement and long-term investing
  • Resources
    • Announcements
    • Forms & Literature
    • Investment Glossary
    • Library
  • About Us
    • Awards
  • Partner With Us
Skip to main content
  • Language
    • English
    • 中文/ Chinese
  • Role
  • Country
Search
Menu
CLOSE
Search
  1. Home
  2. Insights
  3. Market Insights
  4. On the Minds of Investors
  5. Should we be concerned about the rising inflation in China?

  • Print
  • Actions

  • Print

On the Minds of Investors

14/11/2019

Chaoping Zhu

Should we be concerned about the rising inflation in China?

Chinese headline Consumer Price Index (CPI) rose further on soaring pork price. This caused concerns about a monetary tightening, and stock market corrected upon data release. However, there is significant dichotomy between pork price and other inflation indicators, which continue to depict domestic demand weaknesses. The softening credit expansion might also suggest that a monetary tightening is unlikely. Therefore we still expect the People’s Bank of China (PBoC) to retain a moderate easing-bias in order to support the real economy.

According to China’s National Bureau of Statistics, headline CPI inflation rose to its eight-year high of 3.8% year-over-year (yoy) in October, mainly driven by the surging pork price. Given the supply shortfalls caused by African swine fever, pork price rose by 101.3% yoy, and contributed to 2.43 percentage points to the headline inflation reading. There were also signs of spillover from pork to other meat products, such as beef and chicken, and the overall food CPI increased by 15.5% yoy.

On the other hand, core CPI and non-food CPI remained subdued, reflecting cautious consumer sentiment amid the economic slowdown. The non-food inflation declined to 0.9% yoy (September: 1.0% yoy), at its four-year low. Meanwhile, Producer Price Index (PPI) deflation continued for the fourth month since July, with a 1.6% yoy decline recorded in October. This was mainly driven by the 2.6% yoy price decline in upstream raw materials, especially oil, gas, and chemical materials.

The soaring pork price and CPI evoked memories of the situation back in 2010-11, when CPI inflation stayed above 5% yoy for 9 months at the wake of the mega stimulus. However, this time is different when there lacks a large-scale liquidity injection by the central bank. In October,  China’s M2 growth came in at 8.4% yoy, merely in line with nominal GDP growth, while new total social financing slipped to RMB 619billion (September: RMB 2.27trillion, Consensus: RMB 950billion). Therefore, it is unlikely that the inflation could spread quickly beyond food prices.

For the above reasons, the PBoC might take the current inflation as a result of external supply shock rather than the outcome of monetary easing. Instead, the PPI deflation and weak credit expansion likely reflect weak business confidence, which hampers the transmission of PBoC’s easing to real economic activities. Following the latest 5bp Medium-term Lending Facility rate cut on November 5th, the PBoC might continue to lower the rate of its policy tools and cut the required reserve ratio. Meanwhile, restrictive policies will be maintained to prevent liquidity flowing into property sector and speculative activities.

EXHIBIT 1: CHINA’S INFLATION INDICATORS
HEADLINE CPI WAS DRIVEN BY PORK INFLATION, WHILE OTHER INFLATION INDICATORS REMAINED SUBDUED

Source: CEIC, Bureau of Statistics of China, J.P. Morgan Asset Management. Data reflect most recently available as of 12/11/19.

Investment implications


Chinese equity and bond markets corrected on November 11 after the release of high inflation figure, since investors are concerned that the PBoC might tighten up its monetary policy stance. However, investor sentiment stabilized on November 12 after the release of weak credit data, as this in turn suggests a lower likelihood of monetary tightening. Investor sentiment can be easily steered by one piece of macro data but we continue to highlight the importance of focusing on macro fundamentals and long-term trend.

Since the PBoC might remain accommodative in its policy, the current valuation of Chinese stocks is still attractive to long-term investors. Sector leaders in consumer goods, technology and healthcare are preferred given their resilient income growth. Inflow of foreign capital will also support the companies or sectors with strong fundamentals.

FEATURED INSIGHTS

Weekly Market Recap

Start every Monday morning with a one-page snapshot of top headlines, market performance, and chart of the week.

READ MORE

Guide to the Markets

The Guide to the Markets illustrates an array of market and economic trends using compelling charts, providing the building blocks to support conversations with your clients.

DISCOVER MORE

Guide to Alternatives

This is a sister publication to the Guide to the Markets, delivering insights on macro topics like fundraising and manager dispersion, while also diving into real estate, infrastructure & transport, private credit, private equity and hedge funds in detail.

Read More

FEATURED FUNDS

JPMorgan Asian Total Return Bond Fund

To achieve a competitive total return, consisting of capital growth and regular dividend income, through an actively managed portfolio investing primarily in Asian bonds and other debt securities.

FUND DETAILS

JPM Income Fund

To provide income by investing primarily in a portfolio of debt securities.

FUND DETAILS

JPM Asia Pacific Income Fund

To provide income and long term capital growth by investing primarily in income generating securities of countries in the Asia Pacific region (excluding Japan).

FUND DETAILS

The Market Insights program provides comprehensive data and commentary on global markets without reference to products. Designed as a tool to help clients understand the markets and support investment decision-making, the program explores the implications of current economic data and changing market conditions. 

For the purposes of MiFID II, the JPM Market Insights and Portfolio Insights programs are marketing communications and are not in scope for any MiFID II / MiFIR requirements specifically related to investment research. Furthermore, the J.P. Morgan Asset Management Market Insights and Portfolio Insights programs, as non-independent research, have not been prepared in accordance with legal requirements designed to promote the independence of investment research, nor are they subject to any prohibition on dealing ahead of the dissemination of investment research.

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from J.P. Morgan Asset Management or any of its subsidiaries to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professional, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

J.P. Morgan Asset Management is the brand for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide.

To the extent permitted by applicable law, we may record telephone calls and monitor electronic communications to comply with our legal and regulatory obligations and internal policies. Personal data will be collected, stored and processed by J.P. Morgan Asset Management in accordance with our privacy policies at https://am.jpmorgan.com/global/privacy.

This communication is issued by the following entities:

In the United States, by J.P. Morgan Investment Management Inc. or J.P. Morgan Alternative Asset Management, Inc., both regulated by the Securities and Exchange Commission; in Latin America, for intended recipients’ use only, by local J.P. Morgan entities, as the case may be. In Canada, for institutional clients’ use only, by JPMorgan Asset Management (Canada) Inc., which is a registered Portfolio Manager and Exempt Market Dealer in all Canadian provinces and territories except the Yukon and is also registered as an Investment Fund Manager in British Columbia, Ontario, Quebec and Newfoundland and Labrador. In the United Kingdom, by JPMorgan Asset Management (UK) Limited, which is authorized and regulated by the Financial Conduct Authority; in other European jurisdictions, by JPMorgan Asset Management (Europe) S.à r.l. In Asia Pacific (“APAC”), by the following issuing entities and in the respective jurisdictions in which they are primarily regulated: JPMorgan Asset Management (Asia Pacific) Limited, or JPMorgan Funds (Asia) Limited, or JPMorgan Asset Management Real Assets (Asia) Limited, each of which is regulated by the Securities and Futures Commission of Hong Kong; JPMorgan Asset Management (Singapore) Limited (Co. Reg. No. 197601586K), this advertisement or publication has not been reviewed by the Monetary Authority of Singapore; JPMorgan Asset Management (Taiwan) Limited; JPMorgan Asset Management (Japan) Limited, which is a member of the Investment Trusts Association, Japan, the Japan Investment Advisers Association, Type II Financial Instruments Firms Association and the Japan Securities Dealers Association and is regulated by the Financial Services Agency (registration number “Kanto Local Finance Bureau (Financial Instruments Firm) No. 330”); in Australia, to wholesale clients only as defined in section 761A and 761G of the Corporations Act 2001 (Commonwealth), by JPMorgan Asset Management (Australia) Limited (ABN 55143832080) (AFSL 376919). For all other markets in APAC, to intended recipients only.

For U.S. only: If you are a person with a disability and need additional support in viewing the material, please call us at 1-800-343-1113 for assistance.

Copyright 2021 JPMorgan Chase & Co. All rights reserved.

Market Insights
lets-solve-it-logo

For more information, please call or email us. You can also contact your J.P. Morgan representative.

(852) 2978 7788

agents.info@jpmorgan.com

J.P. Morgan Asset Management

  • Terms of Use
  • Privacy Statement
  • Cookies Policy
  • Investment Stewardship
  • Fund Notes
  • Offering Document(s)
  • Forms & Literature
  • Guide to Using This Website
  • Sitemap
J.P. Morgan

  • J.P. Morgan
  • JPMorgan Chase
  • Chase

Important: This area of the website is intended only for distributors of JPMorgan Funds (Asia) Limited. Information is not intended for retail or public distribution.

Investment involves risk. Past performance is not indicative of future performance. In particular, funds which are invested in emerging markets and smaller companies may involve a higher degree of risk and are usually more sensitive to price movements. Investors should carefully read and consider the fund offering document(s), which contain details on investment objectives, risk factors, charges and expenses of the fund, before making any investment decisions. Information in this website does not constitute investment advice, or an offer to sell, or a solicitation of an offer to buy any security, investment product or service, nor a distribution of information for any such purpose. Informational sources are considered reliable but you should conduct your own verification of information contained herein. The above information has not been reviewed by the SFC, issued by JPMorgan Funds (Asia) Limited.

Copyright 2021 JPMorgan Funds (Asia) Limited. All rights reserved.