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China Insights

Monthly update on Chinese markets
18 June 2021
    Download the full reportPDF, 2.59MB

    Summary:

    • By historical precedence, the surge in producer prices in China will not necessarily lead to consumer price inflation. In fact the correlation between PPI and CPI inflations was minus 0.3 over the past five years
    • Inflation by itself also does not seem to have any bearing on equity performance. The correlation between inflation and Shanghai Shenzhen CSI300’s monthly return was also mildly negative over the past five years
    • Although inflation does have an effect on bond yields, as standard economic theory predicts, the magnitude of its impact on Chinese government bonds is relatively small; ten-year government yield has been trading between three and four per cent for most of the past one and half decades
    • Even in the US, real government yields have reached negative territory. Chinese government bonds look attractive in comparison