China spooks investors, although its government shows willingness to act

China's latest macroeconomic data has put investors on alert. This week, the country’s PMI fell to 51.7 points in August from 51.9 in July, making it the eighth consecutive month of economic expansion (above 50 points), but with a visible deterioration compared to the previous months.

This growing weakness is coupled with a reopening that hasn’t been as strong as first expected, and the problems presented by the country's real estate sector.

Alberto Matellán, chief economist at MAPFRE Inversión, explains that the latest data are negative and that “multiple things are coming together” in the country that are driving investor concern.

"In the last decade, we’ve seen occasions when China was going in the wrong direction. But it’s more widespread now and this is spooking investors. However, the data still have room to get worse. The Government has resources available and is showing a willingness to act," he said.

The difference this time is that the support measures adopted by both the Executive branch and the People's Bank of China are more measured and are being deployed more slowly. “On other occasions, they’ve gone in all guns blazing,” Matellán said. “Having said that, the resources are there to handle it and we don’t expect a dramatic impact on the markets.”

In the West, markets showed a lateral trend over the summer and, for the time being, professional investors are committed to taking refuge in the assets they are invested in and wait for future movements to make decisions.

"Significant changes were expected in the summer, but they didn’t materialize. Now, for the last quarter of the year, an economic downturn and divergent messages are expected from central banks, but there’s nothing big enough to expect a significant rise or fall," he observed.

As far as central banks go, Matellán explained that the European Central Bank (ECB) is in “wait and see” mode, as more information is needed before taking a stance, although large movements are not expected.

The US Federal Reserve, for its part, delivered a neutral speech at the Jackson Hole central bankers’ meeting, although it was somewhat more bullish than the market expected. However, MAPFRE Inversión’s chief economist explained that the market has a tendency to be more bearish than central banks with respect to interest rates.

Oil is on the rise

The price of oil, both West Texas Intermediate and Brent crude, rose this week after it was revealed that Saudi Arabia and Russia had decided to implement additional export cuts. Saudi Arabia has extended the reduction of one million barrels until the end of the year, after announcing in July that this cut would remain in place until September, while Russia is going to reduce supply by 300,000 barrels a day.

The chief economist at MAPFRE Inversión believes the important point is that the price increase is coming on the back of a supply management decision and not from demand, so they are short-term decisions. "It’s not going anywhere really. The impact will depend on how long it lasts and how long prices remain high," he said.

Matellán also recalled that this rise in prices has multiple effects, one of them being inflationary, which could jeopardize the perception that rates will remain where they are after inflation has fallen. “The impact will be limited and unlikely to trigger anything,” he said.

No portfolio changes

Matellán said that as professional investors looking toward the coming months, no change has been made to the portfolio. He insisted that there are times, such as now, when the best thing to do is not do anything.

"What I would recommend to investors is to not get nervous. One of the main problems is boredom. It makes them nervous, but there are times when it's best not to change anything," he insists.