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Research Edge Position: Long Chinese Equities via CAF

China's exports declined over 22% year-over-year in April, a sequential decline from March, significantly worse than consensus estimates with shipments to the EU and the US off by 24% and 17% respectively. While the external demand picture remains grim, the internal demand picture continues to demonstrate strength in the wake of Beijing's stimulus transfusion. Key data point takeaways released in recent days that underscore this are:

  • Motor Vehicle sales exceeded 1.15 million in April, a 25% Y/Y increase
  • Urban Fixed Investments up 30.5% Y/Y for April
  • Housing sales up 35.4% in the first 4 months of 09 Y/Y
  • Iron Ore imports up 33% Y/Y to 57 million metric tons

Tonight Industrial Output numbers will be released by the National Bureau of Statistics, with consensus estimates hovering at 9% Y/Y. Any upside surprise in output  could well put fire in the belly of China bulls looking for final confirmation that the demand story here is real, while Retail Sales data slated for this evening could provide assurance that that the ox is hungry for more than just iron ore and scrap copper. As we said yesterday, electronics exporters have already seen an uptick in mainland order flow as rural Chinese shoppers take advantage of government rebates and we will look for confirmation that the cash register is ringing in coastal cities as well.

BANDWAGONEERING - aprilch

We are long CAF and will be holding it into tonight's news.  All data points lead us to believe that the momentum of China's internal demand growth is accelerating.

Andrew Barber

Director