The gravity shift in asset allocation to China

If the world economy is a solar system, then China is at the heart of it. The gravitational pull from China's economy affects every one of us, and in ways we might not initially realize.

That's especially true when we think of 2019, because if the story of 2019 was looser global monetary policy and stronger stock markets, then China wrote it. That's because China made the first move to ease monetary policy in October 2018, which the rest of the world then followed.

And it's not for the first time, because China monetary policy was behind the post-GFC rebound in 2010, the upturn in global growth in 2016, and the subsequent slowdown in 2018.

We think this is both underappreciated driver of the past and an indicative one of the future where global monetary policy will increasingly be shaped out of the HQ of the People's Bank of China at 32 Chengfang Street in Beijing.

China contributes to one-third of global growth

Contribution to global growth (PPP, Intl $), 2019-2020

Source: IMF, April 2019

China's monetary policy drives global growth

China Credit Impulse (LHS) & G20 GDP Growth (RHS) (%/YoY Change), Q2 2008-Q3 2019

China’s credit impulse measures credit growth as a percentage of gross domestic product (GDP). It is a gauge of how easily businesses in China can get loans, a gauge of liquidity conditions in China.

Source: Bloomberg, Organisation for Economic Cooperation and Development, October 2019

Notes: (1) China's credit impulse refers to the change in the growth rate of aggregate credit in the economy to GDP, (2) G20 comprises 19 countries and the European Union. The 19 countries are Argentina, Australia, Brazil, Canada, China, Germany, France, India, Indonesia, Italy, Japan, Mexico, Russia, Daudi Arabia, South Africa, South Koria, Turkey, the United Kingdom and the United States.

China is the second largest bond market globally

China's equity markets are the 3rd largest