China in Stagflation...?

In Economics the term stagflation refers to a situation where the inflation rate is rising along with a fall in output levels.

Many eminent economists believe that In China, this could be a possible situation shaping up. Some of the most recent facts that highlight the same are:

• On Friday the Chinese government released the figures for CPI and IIP. On one hand the CPI figure for the month of May was at 3.1%, above the street expectations and on the other the IIP number for May was below the street expectations at 16.5%.

• The Other Indicator which points out that the Chinese economy has already peaked is the OECD's composite lead indicator. (For More Details you can use this LINK to download our report on the same)

• The Chinese government over the last week did not receive enough bids for any of its bond auctions to be fully subscribed. The reason attributed by the investors is the rising inflation concern in China and low yield offered by these bonds

• Last week, the Steel prices in 30 of China's major province has declined for the 7 straight week

• According to China's Commerce Ministry, the debt problems in the EU will impact Chinese exports in the coming months. The ministry said that it t typically takes Chinese companies about 2 months to fulfill orders, so May's shipments reflected order books before the EU crisis deepened

• The only positive news that came out lat week form the China front was that its exports figures grew by a whooping around 50%,

Kredent Analysis:

Thus we strongly believe that the macro economics events shaping up in China is a cause of concern for the global economic recovery and specially for the metal and mining space. Thus we would advise investors to remain cautious as the Nifty Index again reaches the levels form which it had retraced in the Past.