The world is obsessed with US economic data.
From non-farm payrolls to inflation data to unemployment numbers, the US is home to the most forecast macro-economic indicators.
There are 93 forecasts for non-farm payrolls alone, according to UBS, twice as many as there are for Chinese gross domestic product.
And that is a problem, according to Laurent Bouvier, the head of global industrials at UBS.
Bouvier heads the team at UBS which advises industrial companies around the globe on things like mergers and acquisitions and capital raisings. His views do not represent the house views of UBS.
In a note to clients this on Sunday September 20, he said: “The biggest short to mid-term market risk comes from the over-emphasis of US data since it goes in hand with an under-emphasis of China data.”
He pointed out that it was events in China that played a part in the Federal Reserve refraining from lifting US interest rates, with the central bank making reference to watching developments abroad.
The problem is that there isn’t enough data available to have confidence in what is going on in China. Data from the country is often questioned by economists because it is published by the Chinese central government — a body not known for its transparency.
Data can also be skewed at source. According to a study by the US-China Economic and Security Review Commission, local governments report data to the central government with limited oversight — and they are rewarded based on those numbers, sometimes leading to a conflict of interest in which municipalities are incentivized to inflate data.
“As investors seek to assess the situation in China, they realise they do not have the means to appreciate what is going over there, which results in an indiscriminate negative market reaction.”
Bouvier likened China to a huge industrial conglomerate which delivered on expectations of earnings growth for a period, but then suddenly stopped doing so.
“After a couple of profit warnings, the urge to understand how China works is there but cannot be satisfied out of a lack of understanding and transparency. The result? A massive conglomerate discount.”
He concluded: “We could — or should — be embarking on a new, comprehensive, global educational process about China. It is a matter of global market efficiency. Its central banker should become as well-known as Janet or Mario. And within a couple of years, the number of forecasts for China economic indicators could rival that of the US.”
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