Finimize - 😉 The UK proves its haters wrong

The UK stuns economists everywhere | Be kind, don't rewind |
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Hi Reader, here's what you need to know for October 1st in 3:05 minutes.

🎬 Move aside Kardashians: keeping up with China is what’s really got everyone talking. Join Gavekal’s Louis-Vincent Gave for How To Sidestep Chinese Crackdowns on Monday, and find out how you can invest in the country’s markets even during all this drama. Grab your free ticket

Today's big stories

  1. The UK economy grew faster than economists were expecting last quarter
  2. There are certain global investments you'll want to avoid if you want to protect yourself from China's property crackdown – Read Now
  3. China's manufacturing activity shrank for the first time since the start of the pandemic

Sorry Sight

Sorry Sight

What’s Going On Here?

Well, no one saw this coming: data out on Thursday showed that the UK economy grew faster than expected last quarter.

What Does This Mean?

Looks like economists completely missed the mark on just about all the predictions they made back in August. UK businesses, the government, and the public have all been spending more than expected since April, which means the retail, construction, and services industries have all grown more than expected too. And that means the 4.8% economic growth economists were forecasting missed the mark too: the economy actually grew 5.5% compared to the same time last year. That’s left it “just” 3.3% smaller than it was before the pandemic – on a par with Germany’s 3.3% and France’s 3.2%.

Why Should I Care?

For markets: Rate hikes ahoy.
The Bank of England (BoE) might be feeling vindicated: it’s been talking about raising interest rates before the end of the year, and a stronger-than-expected economy will make it more confident about doing just that. And that rate hike might just be the first of many, with traders expecting three more next year. The BoE will have to be careful, mind you: there are signs supply chain-gate has been dragging on the economy, and raising rates too quickly – which could deter spending – might knock the hard-won recovery off balance.

The bigger picture: Houses are expensive.
The UK housing market wanted in too: house prices were up 10% in September compared to the same time last year – the fifth month in a row of double-digit annual growth. That’s been driven in large part by pandemic-inspired tax incentives, though the market could certainly slow down when the government gets rid of them later this month. Of course, it’s not likely to cause too much of a drop-off: there’s still a shortage of houses and strong demand from homebuyers, and borrowing costs are still at a record low.

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Analyst Take

Evergrande’s Just The Start

Evergrande’s Just The Start

What’s Going On Here?

Evergrande has undoubtedly been the highest-profile victim of the Chinese government’s property crackdown so far.

But it won’t be the only one, and we’re not just talking about other Chinese real estate giants.

We’re talking about the property market as a whole, which is wrestling with an oversupply so significant that it could house the entire population of Germany.

We’re talking about Chinese economic growth, which is predicted to drop to 4% or lower between 2025 and 2030 – a far cry from the 7.7% of the 2010s.

And probably most relevant to you, we’re talking about global markets, which are bound to suffer as the world’s biggest growth engine sputters and stalls.

So that’s today’s Insight: the three wider consequences of China’s property crackdown, and which investments could be caught up in them.

Read or listen to the Insight here

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Broken Record

Broken Record

What’s Going On Here?

Data out on Thursday showed manufacturing activity in China shrank for the first time since the start of the pandemic, and it didn’t like the sound of that back then either.

What Does This Mean?

China was one of the few countries in the world to actually grow its economy last year, mostly by doing a good job of keeping its factories firing on all cylinders. But between widespread energy shortages and newly imposed emissions targets, those same factories have now been having to cut back on production, according to a monthly survey that asks managers how busy they’ve been. That doesn’t bode well for its economy as a whole, with industrial activity accounting for more than 30% of China’s economic output last year. Throw in China’s crackdown on its massive property sector, and investment banks have been rethinking their economic forecasts: both Goldman Sachs and Nomura lowered their growth projections this week from 8.2% to 7.8% and 7.7% respectively.

Why Should I Care?

For markets: Investors are bailing on China.
China’s various crackdowns have wiped billions of dollars off international investors’ portfolios in the last few months, and things might be about to get worse (tweet this): Goldman Sachs reckons one-sixth of the value of the Chinese stock market – $3.2 trillion worth – still relates to companies at risk of regulation. No shock, then, that data out on Thursday showed 12% of professional investors are planning to slash their investments in Chinese assets.

The bigger picture: Nice emissions targets, bro.
China’s push for sustainability might already be leaving marks on its economy, but Europe still doesn’t think the world’s second-biggest economy – which accounts for around a third of global emissions – is going far enough. It’s said it wants the country to speed up its efforts to reach peak carbon dioxide emissions by 2030, as well as promise to stop using coal both at home and abroad.

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📈 What goes up?

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💥 How To Inflation-Proof Your Portfolio: 6pm UK time, October 1st
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🤓 A Smarter Way To Profit In The Short Term: 5pm UK time, October 21st
🇰🇷 Are Korean Stocks The Next Big Thing?: 1pm UK time, October 22nd

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