Market concerns that China’s economy is much weaker than indicated by a robust first-quarter growth rate of 5.3% have contributed to investors significantly derating Chinese stocks. They might want to look again. Electricity consumption, which typically goes hand in hand with economic activity, has risen more quickly than the GDP growth rate since the second half of 2023.
In the past, analysts have used this data to cast doubt over the shape of China’s economy. This was so when power usage lagged the GDP growth rate. But now that the data is pointing to a pickup in electricity consumption, China sceptics have shrugged it off.
If China’s growth is not as weak as the pessimists who dominate market sentiment think, investors may have over-discounted a negative outlook. Such mispricing could signify an investment opportunity in Chinese stocks.
