Investing.com – Here’s a look at three things that were under the radar this past week.
1. Jury Still out on China Rebound?
The latest China Beige Book report suggests there’s plenty of fight left in Beijing’s economy as growth rebounded in the first quarter. But it’s not the good kind of growth, raising fears the world’s second-largest economy will resume its drift lower in the months to come.
China mounted “an unmistakable first-quarter recovery,” driven by a credit binge, according to China Beige Book (CBB), a quarterly review of the economy based on a survey of more than 3,300 Chinese businesses.
Beijing appears willing to sacrifice its pledge to wean itself off government credit in a bid to stop its economic stall.
China’s addiction to credit has been well documented over the years, but Leland Miller, president of China Beige Book, said Beijing’s latest credit binge was coupled with an increase, rather than a decrease, in borrowing costs, casting doubt on the sustainability of the rebound.
The report also noted that corporate borrowing reached the highest point since the middle of 2013, with each sector and region of China reporting a rise in credit costs for the quarter compared with the prior one.
China’s Premier Li Keqiang also talked up the rebound in economic growth earlier this week, saying that changes in the Chinese economy exceeded expectations in March.
“Fixed asset investment has rebounded steadily, consumer confidence index, manufacturing new orders index went up significantly, and capital market transactions were active,” Li said.
Still, there are many who question the accuracy of China’s data.
China’s statistics bureau has attempted to reassure market participants that it has no need to artificially inflate data as the government wants quality growth, not rapid expansion.
When asked if he believed the numbers coming out of China, former Goldman Sachs (NYSE:GS) CEO Lloyd Blankfein famously once said: “Do I believe the numbers? I believe there are numbers.”
But given the importance of China, which accounts for about a third of global growth, market participants appear willing to give the numbers the benefit of the doubt.
“There are signs that China is now pursuing policies that should allow economic growth to stabilize, but we expect only stabilization rather than a large stimulus given low unemployment, record-high leverage and a lack of term limits for President Xi,” Morgan Stanley (NYSE:MS) said in a note to clients.
There were a lot retail stories in the market this week, from Bed Bath & Beyond (NASDAQ:BBBY) soaring after being challenged for board seats by an activist investor to Lululemon Athletica (NASDAQ:LULU) hitting all-time highs on quarterly results.
What some may have missed is Ralph Lauren (NYSE:RL), which not only got a big vote of confidence, but has become one of the darling stocks of the year.
On Wednesday, Wells Fargo (NYSE:WFC) upgraded the fashion company’s stock to outperform from market perform, with a price target of $150.
Wells Fargo analyst Ike Bochurow said the maker of the iconic Polo clothing can expect China, Europe and global e-commerce to drive top-line growth, which will improve valuation.
The stock is a “rare standout” in apparel, Bochurow said.
That endorsement on valuation looks especially strong considering shares of Ralph Lauren, rather stealthily, have risen more than 25% year to date.
That’s nearly twice the performance of the S&P 500, up about 13%, its best quarter since the third quarter of 2009 when it rose nearly 15%.
Ralph Lauren also beat the gains of the SPDR S&P Retail ETF (NYSE:XRT), which is up less than 10%.
3. The Present Isn’t Looking as Good
Things ain’t what they used to be. In fact, things right now look a lot worse than they did just a month ago.
That’s the general consensus of consumers surveyed this week by the Conference Board.
The headline of the Conference Board’s monthly report is its consumer confidence index (which fell unexpectedly in its latest measure issued Tuesday). But it provides a host of other measures, including the present situation index.
In March the present situation index posted the biggest drop since Lehman Bros. collapsed in 2008.
The index, which is based on consumers’ assessments of current business and labor market conditions, sank 12.2 points, to 160.6 this month from 172.8 in February.
The present situation index was 61.1 for September 2008. Lehman filed for bankruptcy on Sept. 15. By October, the present situation index had tumbled 17.6 to 43.5.
The good news for bulls is that the main consumer confidence index stands about 100 points higher than its recent nadir hit shortly after Lehman’s collapse.
— Written and compiled by Yasin Ebrahim and Kim Khan